China unexpectedly cut key interest rates for the second time in three months on Tuesday, while industrial production and retail sales grew in July less than expected, indicating the need for policymakers to ramp up support measures to boost a stalled recovery.
The People’s Bank of China said it cut the interest rate on loans worth 401 billion yuan ($55.25 billion) under its one-year medium-term lending facility for some financial institutions by 15 basis points to 2.50 percent from 2.65 previously.
In a Reuters poll of 26 market observers this week, 20 respondents expected the central bank to leave the interest rate unchanged, compared to six who expected it to decline marginally.
The central bank said in an online statement that it also injected 204 billion yuan through a seven-day reverse repo, while cutting borrowing costs by 10 basis points to 1.80 percent from 1.90 previously.
The People’s Bank of China cut key interest rates in June to support the economy, but the data has been increasingly weak since then.
slowdown in industrial output growth
For example, industrial output grew 3.7 percent in July from a year earlier, slowing from 4.4 percent in June, while retail sales also rose at a slower pace last month.
The production data released by the National Bureau of Statistics today fell short of expectations for an increase of 4.4 percent in a Reuters poll of analysts.
Retail sales rose just 2.5%, down from a 3.1% increase in June, despite the summer travel season. Analysts had expected it to rise by 4.5 percent.
Meanwhile, investment in fixed assets increased 3.4 percent in the first seven months of 2023 compared to the same period in the previous year, compared to expectations for a rise of 3.8 percent.
Low real estate investment
Real estate investment in China fell 8.5 percent in the first seven months from the same period a year earlier.
Official data showed, on Tuesday, that real estate sales by area fell 6.5 percent in the period from January to July compared to the previous year, amid still weak demand and a deepening debt crisis.
New construction fell 24.5 percent through July year on year. And the real estate debt crisis in China worsened amid the absence of strong political support, which added to the problems of the faltering economic recovery. Today’s figures came after a bleak set of data released last week including disappointing trade and consumer prices numbers and record low credit growth. This weak data increases the urgency for more government support measures.
2023-08-15 04:17:29
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