As China’s economy weakens, it lowers interest rates

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China has dropped its benchmark interest rate for the first time in almost two years, citing official data showing the country’s economic development has slowed.

The National Bureau of Statistics reported that GDP increased by 4% in the last three months of 2021 compared to the same period the previous year.

Even though this was better than most analysts expected, it was still a considerable drop from the prior quarter.

Another sign of a weakening retail sector was a 1.7 per cent drop in retail sales growth in December.

China’s GDP grew by 8.1 per cent in the year as a whole, beating economists’ predictions and exceeding Beijing’s yearly objective of around 6 per cent.

Some analysts, however, pointed out that the growth statistics, which were the slowest in a year and a half, did not account for the impact of the recent coronavirus outbreaks.

The People’s Bank of China (PBOC) announced it was decreasing the interest rate on one-year medium-term lending facility loans totalling 700 billion yuan (£80.6 billion; $110 billion) to 2.85 per cent to stimulate the economy. It was the first time such a cut had been made since April 2020.

The seven-day reverse repurchase rate, another PBOC lending mechanism, was also reduced, while the bank pushed an additional 200 billion yuan of medium-term liquidity into the financial sector.

China’s activities distinguish it from the rest of the world’s major central banks. The United States Federal Reserve has announced that it plans to raise interest rates three times this year.

In response to requests to rein in price hikes, the Bank of England raised interest rates for the first time in more than three years last month in the United Kingdom.

Growing fears about the effects of Beijing’s regulatory assault on businesses, the financial health of some of the country’s largest property corporations, and the spread of the Omicron form of COVID-19 have clouded China’s economic picture.