China Cuts Policy Rate; Economic Data Disappoints
China’s central bank lowered its policy rate on Thursday after recent data suggested that the bounce back from the pandemic-related downturn seen at the start of the year proved to be temporary.
Calling for more stimulus measures, official data released today showed that retail sales growth decelerated sharply reflecting weak domestic demand, and industrial production posted slower growth on subdued local and foreign orders.
The People’s Bank of China reduced the one-year medium-term lending facility, or MLF, rate by 10 basis points to 2.65 percent.
This was the first reduction in ten months. The bank infused CNY 237 billion through one-year MLF operations.
As the MLF was reduced by 10 basis points, markets expect the PBoC to move similarly with the loan prime rate on June 20.
The bank also conducted CNY 2 billion seven-day reverse repo at 1.9 percent. These operations were conducted to maintain ample liquidity in the banking system.
Earlier this week, the PBoC had cut the seven-day reverse repo rate to 1.90 percent from 2.0 percent. This was the first lowering since a similar size reduction in August last year.
Data from the National Bureau of Statistics showed on Thursday that retail sales posted a slower growth in May.
Retail sales advanced 12.7 percent from the last year in May. However, this was much weaker than April’s 18.4 percent rise and the expected growth of 13.7 percent.
Industrial production posted an annual growth of 3.5 percent following a 5.6 percent rise in April. Production was expected to gain 3.8 percent.
In the January to May period, fixed asset investment registered an annual increase of 4.0 percent compared to the forecast of 4.4 percent and the 4.7 percent increase in January to April.
The surveyed urban unemployment rate remained unchanged at 5.2 percent in May, in line with expectations.
Weak activity data suggests that this is probably not the end of the stimulus, ING economist Robert Carnell said. However, the more important measures are likely to be fiscal, the economist noted.
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