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Battered Economy, China Suddenly Cuts Interest Rates

Jakarta, CNBC Indonesia – The Central Bank of China (PBOC) on Tuesday (15/8/2023) again cut interest rates for the second time in the last three months. This happened after the Bamboo Curtain country reported deflation for the first time since 2021.

The PBOC said it was lowering interest rates 15 basis points to 2.50% from the previous 2.65%. This decrease was aimed at the one-year medium-term loan facility, known as MLF.

Analysts say the move opens the door to a potential cut in China’s benchmark lending lending rate (LPR) next week. Falling credit growth and rising deflationary risks in July require more monetary easing measures to halt the slowdown.

In addition, the risk of default by some housing developers and missed payments by private wealth managers are also affecting financial market confidence.

“All of this adds to the urgency that policy makers must act quickly before consumer and business confidence plummets,” Tommy Wu, senior China economist at Commerzbank, told CNBC International .

Meanwhile, on the same day the National Bureau of Statistics (NBS) released China’s economic data, which also showed weakness. Data showed retail, industrial and investment sales all growing at a slower pace than expected.

“All the main activity indicators underlined consensus expectations in July, with most stagnating or barely improving in the month,” Julian Evans-Pritchard, economist at Capital Economics, told Reuters .

“And with financial problems at a developer like Country Garden likely to weigh on the housing market in the near term, there is a real risk of the economy slipping into recession unless policy support is stepped up soon.”

According to NBS data, industrial output grew 3.7% from a year earlier, slowing from the 4.4% pace seen in June. This was below expectations for a 4.4% rise in a Reuters poll .

Source : CNBC