Athira Sethu
Kochi, 4 January 2025
The Central bank of China is planning to reduce interest rates from 1.5% in 2025 as part of its moves to reform the country’s interest rate policy. This is a measure to boost lending and investment as the country struggles with weak domestic demand and trade tensions, particularly with the United States.
The People’s Bank of China, or PBOC, is likely to cut interest rates “at an appropriate time” in 2025, reports indicate. The bank, it said, will pay much more attention to interest rate changes rather than striving for specific goals on loan expansion, a reversal of the way it has historically relied on “quantitative targets.” The key interest rate most commonly employed in China is the seven-day reverse repo rate, and it was reduced from 1.7% to 1.5% at the end of last month.
In December, the top leaders in China promised at a crucial economic planning meeting to lower interest rates “in a timely manner” and reduce the reserve requirements banks must hold. All these are steps taken to spur lending and investment in an economy under pressure. The budget deficit was also promised to be increased, along with easing monetary policies to prop up the economy.
China’s economy has been facing troubles because it heavily relies on manufacturing and exports. Domestic consumer demand is weak, and the crisis in the property market has cut consumer wealth, while much of the government’s stimulus has been directed toward producers and infrastructure projects rather than toward consumers.
The Economic advisors of the country in China are saying it should not sacrifice its growth goal for 2024 but pursue stronger fiscal policy to meet this weak domestic demand. The GDP of the nation for the coming year, that is, in 2024, according to President Xi Jinping, would surely exceed 130 trillion yuan with a figure of approximately $17.81 trillion and promised that with proactive policies more were to come before the close of 2025.
