China’s Central Bank Announces Significant Interest Rate Intervention to Stimulate Economic Growth

The central bank of China (People’s Bank of China, PBOC) has approved a substantial stimulus package, described as “the most important since the start of the covid pandemic.” The main purpose of the radical decisions regarding prime rates and real estate market conditions in China is to “counter deflation and return annual economic growth to the target of +5 percent set by the Communist Party and the government.”

During a press conference in Beijing on Tuesday, September 24, China’s Central Bank Governor Pan Gongsheng (pictured) announced that the central institution has decided to “lower the seven-day repo rate by 0.2%, bringing it to 1.5%.”

In addition, it was decided to lower the banks’ required reserve ratio by 50 basis points (0.5%): this move should free up liquidity of 1000 billion yuan, or more than $142 billion, to be used for new loans. By the end of 2024, “depending on the liquidity situation in the market,” the required reserves ratio may be further reduced by 0.25%-0.5%.

“All these extraordinary measures,” Pan emphasized, “will entail a reduction in the medium-term funding rate by about 0.3%, while the primary interest rates (LPR) and deposit rates should fall by 0.2%-0.25%.

The central bank will also ensure that lending institutions “in turn reduce interest rates on existing mortgages by an average of 0.5% to ease credit pressure on families.” In conjunction with this, the minimum down payment rate for apartment and home buyers nationwide will be reduced by 10%: from the current 25% to 15%.