The People’s Bank of China (PBOC) cut interest rates on Monday, in a move that came as a surprise to financial markets in China.
The People’s Bank of China said in a statement that it cut the five-year interest rate – a benchmark for mortgages – by 10 basis points to 3.85% from 3.95%.
It also cut its one-year interest rate to 3.35% from 3.45%, as the bank tries to revive the struggling real estate sector and support the slowing economy.
The bank reduced collateral requirements for medium-term lending facilities to banks, citing the need to ease pressure on the bond market.
Following the decision to raise interest rates, the Chinese yuan fell against the dollar, and the People’s Bank of China’s indicative rate today reached 7.1335 yuan per dollar, down from Friday’s level at the end of last week’s trading, which was 7.1315 yuan per dollar.
Chinese rules allow the yuan to rise or fall by 2% from the central bank’s reference rate each trading day in the spot foreign exchange market, which is determined based on the buying prices offered by major financial institutions before the start of daily interbank trading.
The world’s second-largest economy has struggled to regain momentum since the coronavirus pandemic, with a downturn in the property market a major drag on growth.
Economic growth slowed to 4.7% in China in the second quarter of 2024, but remained at the government’s target rate of around 5% in the first half of the year.
The years-long property crisis worsened in June as new home prices fell at the fastest pace in nine years, hurting consumer confidence and limiting the ability of debt-laden local governments to generate new funds through land sales.
