China is anticipated to slash key lending benchmarks on Tuesday for the first time in 10 months to boost the country’s sluggish economic growth, according to a Reuters survey.
Economic data from April and May showed that the retail and industrial sectors remained unable to keep up the growth seen in the first quarter, fueling fears that China’s post-Covid recovery could stall this year, which will result in massive job cuts.
Last week, the People’s Bank of China (PBOC) reduced a key lending rate by 10 basis points to 1.90% from 2.00%, after it injected 2 billion yuan ($279.97 million) through the short-term bond instrument.
Analysts stated that the PBOC’s decision did not come as a complete surprise to the market, given that recent economic data has indicated a decline in investor sentiment and a tepid demand climate.
Reuters’ latest poll found that all respondents expected the Chinese central bank to cut both the one-year loan prime rate (LPR) and the five-year tenor. 66% of respondents anticipated the one-year LPR to be reduced by 10 basis points, from 3.65% to 3.55%. Some analysts predicted a reduction of 5-15 bps.
Half of those surveyed expected the five-year LPR to be slashed by at least 15 basis points to boost home demand and the real estate market. Another half also anticipated a reduction in the current five-year tenor of 4.3% to 4.2%.
Goldman Sachs on Monday is the latest major bank to cut China’s economic growth forecast as the world’s second largest economy is struggling to post strong growth after coming out of strictest Covid-19 lockdown in the world.
The investment bank joined other big names such as UBS, Standard Chartered, BoA, and JPMorgan that previously downgraded China’s GDP growth last week. Goldman Sachs cut China’s full-year economic growth forecast in 2023 to 5.4% from 6%, adding that there is further turbulence ahead for the economy.
