China Unexpectedly Cuts Interest Rate as World Markets Sag
China’s central bank on Thursday cut a key interest rate, in Beijing’s second move this week to try to offset a weakening economy and a housing market crisis.
The unexpected action came as stock markets fell sharply across most of Asia in early trading, in an echo of Wall Street’s sharp drop the day before. Market indexes were down 1 to 3 percent in Australia, Japan, South Korea and Hong Kong.
But share prices were down by less in Shanghai and Shenzhen. That could reflect a favorable response by investors to the central bank’s rate move, or a sign of intervention by the Chinese government, which plays an extensive role in the country’s stock markets.
As markets opened in China on Thursday, the People’s Bank of China, the central bank, reduced its interest rate for one-year loans to commercial banks to 2.3 percent, from 2.5 percent. It was the biggest cut to that rate since a similar reduction in April 2020, when the Chinese economy was struggling because of a nearly national lockdown in the early days of the coronavirus pandemic.
The one-year rate is important as a guide to commercial banks on the interest rates that they use for loans to corporate customers and also to the financing units of local governments. Beijing blocks local governments from borrowing directly from banks, but has allowed them to set up financial units that do so.
Many of these financial units are now deep in debt, and the local governments that control them have been cutting the salaries of teachers and other civil servants to conserve cash.
The reduction in the one-year interest rate followed moves by the central bank on Monday to lower other rates that it controls. The actions came after a conclave of the Communist Party’s leadership on economic