China’s central bank cut its short-term lending rate for the first time in four years on Monday, signalling the start of a new easing cycle as Beijing becomes increasingly concerned over slowing economic growth.
The People’s Bank of China said on Monday that it would lower the seven-day reverse repurchase rate from 2.55 per cent to 2.5 per cent.
Economists noted that the slight adjustment to the rate, which had not been lowered since 2015, was a sign that China’s policymakers had moved into a new easing cycle as the trade war with the US had begun to hurt businesses and lower the outlook for growth.
“No matter what the current benchmark rate is, China is clearly entering a new rate-cutting cycle and more cuts lie ahead,” Larry Hu, head of greater China economics at Macquarie Group, said in a note to investors.
However, Mr Hu warned that such rate cuts would not be effective in stimulating demand for credit, an essential ingredient to bolster real growth. “Like the case in 2012 and 2015, cutting rates could only do so much to boost credit demand,” he said.
Over the course of this year, access to credit in the country has remained tight and the domestic economic environment has continued to darken. Official statistics show gross domestic product growth is now touching a near 30-year low at about 6 per cent — an enviable rate for most large economies but a challenge for China as it comes off of decades of much higher, debt-fuelled growth.
The central bank has…