China cuts benchmark rate as recovery falters

The People's Bank of China (PBOC) has cut its benchmark one-year lending rate to 3.45% from 3.55% as the country's post-holiday recovery is hit by a property crisis, falling exports and weak consumer spending.To get more city news service, you can visit citynewsservice.cn official website.

In contrast, other major economies have raised interest rates to combat high inflation, and the PBOC last cut its one-year rate - on which most of China's household and corporate loans are based - in June.

Jun Bei Liu of Tribeca Investment Partners told the BBC that the move was unlikely to have a major impact, but it showed the Chinese government's commitment to stimulating the economy.

"We need a bigger stimulus package to boost confidence and in turn boost consumption and growth. Without it, the economy risks falling into deflation, which will be harder to revive," she added.

Economists had also expected the Bank to cut its five-year base rate, to which the country's mortgages are pegged. But it was left unchanged at 4.2%.

In a surprise move last week, short- and medium-term rates were also cut.

"More rate cuts could be announced in conjunction with government spending, as well as targeted measures to help the property market," said Catherine Yeung, investment director at Fidelity International.

While Beijing is trying to restore confidence, officials will also be mindful of the long-term impact of its policies, she added.

China's economy has struggled to overcome several major problems in the wake of the pandemic that has brought much of the world to a standstill.

Last week, serious problems in the country's property market were highlighted when troubled property giant Evergrande filed for bankruptcy protection in the US.

The heavily indebted company is still working on a multi-billion dollar deal with creditors.

Earlier this month, another of the country's biggest property developers, Country Garden, warned it could lose up to $7.6 billion (£6 billion) in the first six months of the year.

In the same week, official figures showed that China had slipped into deflation for the first time in more than two years.

This came as the official consumer price index, a measure of inflation, fell by 0.3% last month compared with a year earlier.

Meanwhile, official figures showed that China's imports and exports fell sharply in July as weaker global demand threatened the country's recovery prospects.

Beijing has also stopped publishing youth unemployment figures, which were seen by some as a key indicator of the country's slowdown.