China's unexpected Rate Cut: Bolstering Counter-cyclical Measures for Real Economy Support

On Monday, China unexpectedly announced cuts to key short-term policy rates and benchmark lending rates in a bid to stimulate growth in the world's second-largest economy.

Last week, China released second-quarter economic data that fell short of expectations, just before the plenary session of the National People's Congress, China's highest decision-making body, held every five years.

China's economy is under pressure as it teeters on the brink of deflation, continues a sluggish real estate market, ballooning debt and declining consumer and business confidence. At the same time, trade tensions are rising as the world becomes more reliant on Chinese exports.

Larry Hu, chief China economist at Macquarie Group, said that this unexpected interest rate cut may be an emergency measure to combat the slowdown in economic growth in the second quarter, and called for an agreement to be reached this year before the third plenary session of the National People's Congress. economic growth goals set.

The People's Bank of China (PBOC) announced on Monday that it will lower the seven-day reverse repurchase rate by 0.1 percentage points to 1.7% and will optimize the open market operation mechanism. Immediately afterwards, China made routine adjustments to its benchmark lending rates on a monthly basis. The one-year loan prime rate (LPR) was reduced from the original 3.45% to 3.35%, and the five-year loan interest rate was also reduced from 3.95% to 3.85%.