China’s central bank has announced its biggest stimulus since the pandemic in a bid to revive its economy back towards the government’s growth target. The new stimulus package offers more funding and interest rate cuts, marking the latest attempt by the central bank to restore confidence in the world’s second-largest economy after disappointing data raised concerns about an economic slowdown.
Restrictions on borrowing ease
In addition, the bank’s governor, Pan Gongsheng, said he would also ease restrictions on borrowing to invest in stocks and shares on Chinese exchanges. This announcement boosted the Shanghai composite index by more than 4 percent within hours. Chinese stocks and bonds surged and Asian stocks hit 2.5-year highs while the yuan jumped to a 16-month high against the dollar.
Pan did not specify when the moves would come into effect but said up to $66.94 billion worth of assets could be used in the stock exchange program to support extra investment.
Mortgage average interest rates down
In a bid to support the struggling housing market, the central bank also announced a support package that included a 50-basis-point reduction on average interest rates for existing mortgages and a cut in the minimum downpayment requirement to 15 percent on all types of homes, among other measures.
China’s property market has been struggling since peaking in 2021. Several developers have defaulted, leaving behind large inventories of apartments and several incomplete projects.
Measures may not be enough
Despite the stimulus package being China’s largest in years, analysts raised concerns that the central bank has not taken any measures to support real economic activity and the weak credit demand. Analysts also said that the package may not be enough to return growth to a trajectory towards this year’s official target of roughly 5 percent.
China’s central bank now expects lower interest rates and lower deposits to help about 50 million households, reducing the total interest bill by about $21.42 billion annually.
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