Chinese stocks sank on Monday after China’s central bank made smaller-than-expected adjustments to interest rates, undermining hopes of stimulus for the world’s second largest economy.
The People’s Bank of China reduced its one-year loan prime rate (LPR) by 0.1 percentage point to 3.45% while the five-year rate was kept unchanged at 4.2%. Economists had expected a cut of 0.15 percentage point for both rates.
“The underwhelming LPR announcement strengthens our view that the PBOC is unlikely to embrace the much larger rate cuts that would be required to revive credit demand. Hopes for a stimulus-led turnaround in economic activity largely depend on the prospect of greater fiscal support,” analysts at Capital Economics wrote in a research note on Monday.
The five-year loan prime rate is the reference rate for mortgages in China. The lack of a rate cut disappointed investors hoping for a boost to the real estate sector as
Country Garden Holdings,
one of China’s biggest property developers, faces a severe liquidity crunch
Stocks in China suffered, with Hong Kong’s Hang Seng Index falling 1.8% on Monday and mainland markets also dropping. They were the biggest losers in mixed Asian trading, as Japan’s Nikkei 225 gained 0.4%.
Disappointing stimulus raises questions about China’s ability to restore its economic growth to prepandemic levels.
UBS
economists led by Tao Wang cut their 2023 growth forecast for China’s gross domestic product to 4.8% from 5.2% previously on Monday.
Write to Adam Clark at [email protected]
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