Athira Sethu
Kochi, 24 September 2024
China’s central bank introduced new measures in its bid to revive its limping economy. Among the major steps were reserve requirement ratio cuts for banks and cutting the major interest rate.
Pan Gongsheng, the Governor of People’s Bank of China described these steps as ones through which “direct commercial banks would lower the interest rates of existing mortgage loans to become closer to those for newly issued loans.”
Long-Term Liquidity Injections
Pan mentioned that the reserve requirement ratio is to be cut by 0.5 percentage points in the short term. This will add around 1 trillion yuan into the financial market with long-term injections.
Loan for Home Purposes
It will also simplify the borrowing of interest rates on current mortgage loans and harmonize the down payment ratios in mortgage loans. It seeks to minimize the burden caused by mortgage-related expenses to homeowners and also catalyze the housing market.
Current economic stresses:
Despite all this, the Chinese economy- the world’s second-largest economy-, is still far from delivering the post-pandemic recovery expected by market consensus. Large challenges still loom, including a protracted debt crisis in the property sector, and deflationary forces at play. Moreover, unemployment at all levels have been abnormally high. The government’s recent step reflects its concern with urgent economic issues. Chinese stimulus measures led to a rally in equity markets across Asia and Europe. Especially, metal and commodity stocks get a leg up as China is the biggest market for such commodities.
