The PBoC cuts rate on one-year loans to 2.65% as Beijing plans measures to boost consumption 

CHINA’S weakening economy prompted the central bank to cut interest rates for the first time since August, and expectations are growing for more stimulus targeted at ailing industries including the property sector. 

The People’s Bank of China (PBoC) reduced the rate on its one-year loans last Thursday after lowering short-term rates earlier last week. Official data showed a slump in real estate, a worrying decline in business investment and record joblessness among young people. 

Measures to boost consumption — including those to promote the development of the car, home appliance and catering industries — are in the works, a Commerce Ministry spokesperson said last Thursday at a regular briefing. 

“Stimulus is likely to be measured,” said Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered plc. “We see the PBoC’s policy rate cut as a clear signal of policy easing, intended to prevent the negative sentiment from fanning itself.” 

Other measures are likely to follow, Ding said, including “targeted support to the housing sector, increase in policy bank lending, and possibly additional local special bond issuance quota”. 

Key highlights include: 

• PBoC cut the rate on its one-year loans — or medium-term lending facility (MLF) — by 10 basis points to 2.65%.
  
• Growth in industrial output slowed to 3.5% from 5.6% in April.
• Retail sales grew 12.7%, below expectations, with sales of property market-related items such as construction materials and home appliances easing.
• Fixed asset investment in the first five months of the year rose 4% from a year earlier. Investment by private businesses contracted 0.1%, while property investment declined 7.2% 

The National Bureau of Statistics said the foundation of the economy’s recovery “is not yet solid”, and focus needs to be on repairing and expanding demand. 

The unemployment rate remained relatively elevated at 5.2% in May, while the jobless rate for young people between the ages of 16 and 24 rose slightly to 20.8%, a new record high since data became available in 2018. 

The housing market remains a major drag on growth. Property investment contracted 7.2% in the first five months of the year from the same period in 2022, worse than expected. Construction of new homes plunged more than 22% in the period. Home prices rose just 0.1% month-on-month in May, down from 0.3% in April. 

The PBoC also provided 237 billion yuan (RM152.01 billion) of medium-term loans, more than the 200 billion yuan maturing in June. 

The cut to the one-year MLF rate was largely expected after a key short-term rate was reduced by the same magnitude last Tuesday. The two rates are usually adjusted together.

• This article first appeared in The Malaysian Reserve weekly print edition