There is increasing analysis regarding the People’s Bank of China’s decision to lower interest rates, aimed at revitalizing the nation’s real estate market and overall economy following a lackluster year.
The central bank reduced a crucial lending rate, the five-year loan prime rate, by 25 basis points to 3.95%, exceeding the anticipated 15 basis points and marking the first decrease since the previous summer.
Julian Evans-Pritchard from Capital Economics commented, “By itself, this reduction won’t resurrect new home sales. However, when combined with measures to enhance credit support for developers, this cut should alleviate some stress in the property sector.
The broader context is that the PBOC is still hesitant to implement the substantial and widespread rate cuts necessary to significantly boost credit growth and, in turn, economic activity.”
Susannah Streeter, head of money and markets at Hargreaves Lansdown, noted, “China’s economic vulnerability is a growing concern as the country continues to struggle with a real estate downturn. The latest effort to stimulate demand underscores the severity of the issues.”
However, she observed that the more significant-than-anticipated rate cut has not yet significantly bolstered confidence, especially considering the real estate market’s role as a major economic driver in the past decades, stimulating the global mining industry.
Streeter added, “This situation has focused attention on various economic concerns, ranging from real estate debt to deflation to declining foreign investment. Iron ore prices are at a three-month low, reflecting diminishing hopes for a steel demand resurgence.
Asian stock markets have fallen again due to persistent economic worries, setting a subdued tone for the FTSE 100’s trading start. Investors are also wary of the possibility of prolonged high-interest rates in the United States.”
The CSI300 Index, a blue-chip stock market index, closed 0.2% higher, marking its sixth consecutive session of gains, while the Hang Seng Index in Hong Kong finished the day with a 0.6% increase.
Andy Maynard, the head of equities at China Renaissance in Hong Kong, described the rate cut as “extremely beneficial for the market.”
David Chao from Invesco Asset Management noted that the rate reduction, which affects mortgage pricing, is a clear indication of the government’s commitment to bolstering the property market.
Stocks of real estate developers saw a 1% rise, and securities brokers experienced a 1.3% increase.
In Hong Kong’s market, technology giants saw a 0.4% uptick, following a 6.9% surge in the previous week, and shares of mainland property developers went up by 0.8%.
