China Cuts Rates As Economy Slows

Woah. Big news this morning as China announced they would a key interest rate which caught the global financial community off guard…(Wall Street Journal)

The People’s Bank of China on Friday cut its benchmark rate for loans of five years or more to 4.45% from 4.6%, the biggest single reduction since the rate entered the bank’s policy armory in 2019. It had made a 0.1 percentage-point cut in early 2020.

The cut was unexpected, given that earlier this week the central bank had left unchanged another key policy rate, charged on loans from a medium-term lending facility that funnels cash to commercial banks.

This announcement comes on the heels of some bad economic news for China. Bloomberg Economics wrote in a report on Thursday that US growth will outpace China’s for the first time since 1976…(Bloomberg)

The world’s second-largest economy will grow just 2% this year, Bloomberg Economics wrote in a report Thursday. By comparison, US gross domestic product will increase 2.8% this year, Bloomberg Economics predicts.

The Bloomberg Economics call is on the bearish end of the spectrum, with the median forecast for China’s 2022 GDP growth still over 4%. If they have it right, this year would be the first time that China’s full-year growth pace has lagged behind that of its rival since 1976, when China was emerging from the tumultuous decade of the Cultural Revolution, World Bank data show.

Mostly everyone who reads or hears anything I say about China knows I think China’s entire economy is a house of cards. As COVID continues to ravage that country it is going to be harder and harder for them to juice their economy with capital injections. They have already spent $5 trillion dollars to fight and COVID and even that is not enough. What more can they do without toppling the house of cards?