The People’s Bank of China reduced a key interest rate and injected billions into financial markets on Thursday, as new statistics showed the world’s second-largest economy was slowing.
The initiatives are the most substantial by leaders to try to re-energize growth after recent indicators suggested that the hoped-for strong recovery following years of Covid lockdown-induced slowing was soon running out of steam.
China’s efforts contrast with those of the United States and other Western countries, which have been obliged to raise interest rates while shrinking the money supply in order to combat inflation.
The People’s Bank of China said in a statement that officials cut the medium-term lending facility (MLF) rate — the interest rate on one-year loans to financial institutions — by 10 basis points to 2.65 percent.
The PBOC also announced a 237 billion yuan ($33 billion) medium-term loan facility for banks in order to “maintain reasonable and sufficient liquidity in the banking system.”
The news comes just two days after China announced a surprise decrease in short-term interest rates this week, which analysts said signaled rising anxiety among Chinese authorities about the status of the economy.
The MLF rate serves as a guidance for the benchmark lending rate for families, enterprises, and mortgages, which will be released next week.
Lowering the MLF rate lowers commercial banks’ financing costs, enabling them to lend more and potentially increasing domestic consumption.
A slew of weak economic indicators in recent weeks have shown that the country’s post-Covid recovery is stalling.
In May, inflation grew by only 0.2 percent year on year, while factory activity fell for the second month in a row.
Youth unemployment surged to a record 20.8 percent in May, according to data released Thursday.
Meanwhile, industrial output growth slowed to 3.5 percent in April as factories progressively returned to full capacity, while retail sales, the primary measure of household spending, increased 12.7 percent 18.4 percent.