China: Central Bank Leaves Key Rate Unchanged

The central bank of China (People’s Bank of China, PBOC) has decided not to touch the key rate of 2.5% that applies to medium-term (one year) loans, equal to about $54 billion paid to some of the Asian country’s lending institutions.

The decision to leave the benchmark one-year lending rate unchanged is part of Beijing’s economic and financial policy, which has pledged to guarantee economic growth of “around 5%” in 2024. China’s economy grew 5.2% last year. The Chinese government wants to transform the economic development model by limiting the risks associated with the crisis in the real estate sector and the alarming indebtedness of local governments. In addition, the central bank aims to ensure the stability of the yuan exchange rate. According to PBOC Chairman Pan Gongsheng, the country’s financial authorities have at their disposal “rich monetary policy tools.”

Last month, China’s Ministry of Housing announced the approval of $17.2 billion in loans for the construction industry. Another $4 billion was provided under the so-called “white list,” a special financing facility designed to inject liquidity into the real estate sector.

Nonetheless, it doesn’t look like government stimulus measures to alleviate the real estate market crisis are working very well at this point. China’s new home prices fell for the eighth consecutive month in February. According to the National Bureau of Statistics (NBS), new house prices fell 1.4% year-on-year, the biggest decline in 13 months. On a month-over-month basis, real estate prices fell 0.3% in February 2024.