Key events
Prices of iron ore futures have risen, partly thanks to today’s lending rate cuts in China.
The most-traded January iron ore contract on China’s Dalian Commodity Exchange gained 1.5% to trad at 770 yuan (£83) per metric tonne.
Introduction: China cuts lending rates in latest growth push
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Banks in China have cut borrowing costs in the latest attempt to stimuluate growth across the Chinese economy.
The People’s Bank of China (PBoC) has announced today that its two benchmark lending rates are being cut, by a quarter of one percent.
China’s one-year loan prime rate – a reference for loans to businesses and consumers – has fallen to 3.1% from 3.35%.
The five-year LPR – the benchmark for mortgages – has been cut from 3.85% to 3.6%.
The LPR rates are set by a group of China’s major banks, and today’s reductions show they are passing on last month’s interest rate cut from the PBOC.
Becky Liu, head of China macro strategy at Standard Chartered says:
“The larger cuts confirm the PBOC’s stance of easing monetary policy more quickly, and echo the Politburo’s statement of cutting rates more forcefully.”
🚨 China reduced its one-year loan prime rate from 3.35% to 3.10% and the five-year LPR from 3.85% to 3.60%, following the central bank’s late September interest rate cuts, aiming to revive economic growth and stabilize the housing market. pic.twitter.com/8oKsFM9zKW
— BigBreakingWire (@BigBreakingWire) October 21, 2024
Some stocks rallied after the cuts were announced, with the Shenzhen SE Composite index gaining around 1.4% today.
China Stocks Extend Gains as PBOC Cuts LPR
The Shanghai Composite rose 0.2% to around 3,270 while the Shenzhen Component jumped 1.3% to 10,490 on Monday, extending gains from the previous session after the People’s Ban…
More here: https://t.co/NQnnRvWDqr pic.twitter.com/4nbD6Zlw7d
— TRADING ECONOMICS (@tEconomics) October 21, 2024
Stephen Innes, managing partner at SPI Asset Management, says:
Sure, the rate cut wasn’t a shocker, but the market is banking on the idea that the combined impact of all these recent measures could at least stem the economic bleeding.
However, the reality seems to be that the Chinese Communist Party is desperately trying to harness the wealth effect from local equities to keep morale high. It’s a classic case of “hope floats” until the actual economic recovery kicks in—whenever that might be. Just look at Friday when Xi Jinping sent PBoC Governor Pan Gongsheng to pump some life into the markets with a pep talk, and guess what? It worked.
Mainland and Hong Kong-listed stocks surged, the kind of response Beijing was banking on.
It’s the latest in a flurry of attempt to stimulate the world’s second-largest economy, after growth slowed to an 18-month low last week. Last month, China announced wide-ranging measures including interest rate cuts and more liquidity for the banking system.
Beijing is attempting a difficult balancing act – trying to revive growth while also implementing structural reforms, and managing financial stability risk.
China’s property sector remains in a slump, with sales down sharply this year despite efforts to boost sentiment.
And while cutting lending rates may provide some help, it will be difficult unless Chinese consumers feel confident enough to borrow – at a time where consumer confidence is near an all-time low….
