Investors Welcome China's Rate Cuts But Want Fiscal Catalyst
Date
10/21/2024 10:14:58 AM
(MENAFN- Asia Times)
China's slashing of its key lending rates on Monday marks one of the most forceful interventions from the People's bank of China (PBOC) in recent years.
The one-year loan prime rate (LPR) was reduced by 25 basis points to 3.1%, and the five-year LPR, widely used as the benchmark for mortgages, fell by a similar margin to 3.6%.
For global investors, this news couldn't come at a better time. The world's second largest Economy has been mired in sluggish growth, largely driven by a combination of property market woes, deflationary pressures and muted consumer demand.
These rate cuts signal a new level of urgency among Chinese policymakers, underscoring their commitment to reviving a growth trajectory that has been faltering for months.
For investors, this is a welcome move. Lower borrowing costs should support businesses and households, unlocking fresh liquidity and reigniting the economic momentum that has been sorely lacking.
However, while monetary easing will undoubtedly be a powerful lever, it's increasingly clear that a more potent fiscal response – especially targeting households– will be the key to achieving the country's year-end target of 5% GDP growth.
Ripple effect
Global markets tend to breathe a collective sigh of relief when China's central bank moves decisively to bolster its economy.
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