China cuts interest rates as economic growth slows

• Posted on January 17, 2022January 17, 2022
• by Nana Kwesi Coomson
• Comment

China has unexpectedly cut a key interest rate for the first time in almost two years as official figures showed its economic growth had slowed.

Gross domestic product (GDP) grew by 4% for the last three months of 2021 from a year earlier, the National Bureau of Statistics said.

That was better than most economists had predicted but was a lot slower than the previous quarter.

In another sign of weakness retail sales growth for December fell to 1.7%.

For the year as a whole, official data showed that China’s economy grew by 8.1%, which beat economists’ forecasts and came in well above Beijing’s annual target of “over 6%.”

However, some economists highlighted that the growth data, which was the slowest in a year and a half, has yet to take into account the effect of the latest coronavirus outbreaks.

“The GDP figure didn’t reflect the impact of domestic spread of the omicron variant since late December which will hit the service industry significantly, especially offline consumption and transportation, Yue Su from the Economist Intelligence Unit said.

To help boost the economy the People’s Bank of China (PBOC) said it was lowering the interest rate on 700bn yuan (£80.6bn; $110bn) worth of one-year medium-term lending facility loans to 2.85%. It was the first such cut since April 2020.

Another PBOC lending measure, the seven-day reverse repurchase rate, was also cut, while the bank pumped another 200bn yuan of medium-term cash into the financial system.

The moves put China further apart from other major central banks around the world.

The US Federal Reserve has signalled that it plans to increase its interest rate three times this year.

While in the UK, the Bank of England raised interest rate last month for the first time in more than three years, in response to calls to tackle surging price rises.

China’s economic outlook has been clouded by growing concerns about the effects of Beijing’s regulatory crackdown on businesses, the financial health of some of the country’s biggest property firms and the spread of the Omicron variant of Covid-19.

-BBC