China cut its benchmark lending rates for the first time in 10 months Tuesday in a bid to reinvigorate its stalling economic recovery. But Asian stocks fell as investors were hoping for more.
The People’s Bank of China cut its one-year loan prime rate by 10 basis points to 3.55%, lowering its five-year rate by the same amount to 4.2%. However, the move was expected and the market has been waiting for a larger stimulus boost.
Hong Kong’s
Hang Seng
Index fell 1.5% Tuesday, while China’s
Shanghai Composite
was 0.5% lower.
“The aim is to bolster lending, but investors appear a little underwhelmed by the action and are waiting until further moves promised to bolster the economy materialize,” Hargreaves Lansdown analyst Susannah Streeter said.
Economists at Goldman Sachs lowered their forecasts for China’s economy in a note Sunday, as they said the country’s post-Covid recovery “appears to have fizzled out” in the second quarter. They reduced their 2023 GDP (gross domestic product) growth forecast to 5.4% from 6%, while their 2024 forecast was cut to 4.5% from 4.6%.
The modest rate cut suggests an element of reluctance from China to stimulate demand. The world’s second-largest economy is going to need a much larger stimulus package to kick-start its sluggish recovery.
The cuts follow a rate reduction on seven-day repurchase operations by 10 basis points made last week.
Write to Callum Keown at [email protected]
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