China cuts key interest rate for first time in 2 years

China’s central bank has unexpectedly cut its key interest rate for the first time in about two years to help lift the economy as growth slowed in the fourth quarter of 2021.

The country’s National Bureau of Statistics (NBS) said on Monday that GDP grew by 4%, which was slower than in the previous three quarters but higher than the 3.3% predicted by economists. The fourth quarter growth was impeded not only by COVID-19 surges and electricity shortages but also by defaults in the housing and property sector.

For the full year though, the world’s second-largest economy expanded 8.1%, well above the government’s target of over 6%.

Repo rate also cut

The People’s Bank of China (PBOC) said it was lowering the interest rate on CNY700 billion ($121 billion) worth of one-year medium-term lending facility to 2.85%. It was the first such cut since April 2020. Another PBOC lending measure, the seven-day reverse repurchase (repo) rate, was also cut, while the bank pumped another CNY200 billion ($32 billion) of medium-term cash into the financial system

Economists see an unclear outlook for 2022, with global demand forecast to slow, the Omicron variant still spreading inside and outside China, and no end in sight to the housing market crisis.

Charting a different path

China has also diverged from other major central banks with the latest interest rate cut.

The US Federal Reserve (Fed) is expected to increase interest rate three times this year. And in the UK, the Bank of England raised interest rate last month for the first time in more than three years, in response to calls to tackle surging price rises.