In an unexpected decision that took markets by surprise, PBoC announced a cut in key policy rates for the second time in a span of three months, just an hour before the release of July economic data that broadly fell short of market expectations.
PBOC lowered the rate on its one-year medium-term lending facility loans – valued at CNY 401B – to financial institutions by 15bps to 2.50% from the previous 2.65%. This significant move indicates the possibility of a reduction in China’s benchmark loan prime rate in the upcoming week.
A closer look at the economic metrics for July reveals concerns. Industrial production grew at 3.7% yoy, underperforming against the anticipated 4.3% yoy and marking a slowdown from the 4.4% yoy of the previous month. Similarly, retail sales saw increase of just 2.5% yoy, lagging behind projected 4.2% yoy and decelerating from 3.1% yoy. This rate marks the slowest growth pace in sales since the decline observed in December 2022. Furthermore, fixed asset investment growth, year-to-date year-on-year, was recorded at 3.4%, falling short of 3.8% expectation.
Urban unemployment rate witnessed a slight increase, moving from 5.2% to 5.3%. Notably, NBS did not provide the usual age breakdown of unemployment figures. The spokesperson mentioned the suspension of youth unemployment data attributing it to societal and economic changes, and highlighted an ongoing reassessment of its data collection methodology. It’s worth noting that in June, the youth unemployment rate (for ages 16-24) reached a record high of 21.3%
NBS also said in a statement, “We must intensify the role of macro policies in regulating the economy and make solid efforts to expand domestic demand, shore up confidence and prevent risks.”
