Chinese BC surprises and keeps interest rates unchanged for the real estate sector – 08/20/2023 – Market

China’s central bank surprised and did not change the five-year basic interest rate, which stood at 4.2%, at its monthly meeting held this Monday morning (21). The Beijing and Shanghai Stock Exchanges opened lower.

This is the reference rate for the costs of the real estate market, which is paralyzed, with developers in crisis. The People’s Bank of China, as the Central Bank is called, has concentrated its efforts in response to the slowdown in the country, which intensified in July’s indicators.

The reduction was expected by most economists and financial market executives surveyed by Bloomberg and Reuters. Another reference rate, for one-year loans, was reduced from 3.55% to 3.45%, also below expectations.

A week ago, the BC had cut other interest rates, in what was then perceived as the beginning of the deepening of measures to revive the economy. And, on Friday (17), the institution brought together economic agents to demand a greater offer of credit.

The meeting was also to determine that regulators and commercial banks will adopt a “coordinated” strategy to control threats linked to local government debt, “strengthen monitoring” and “firmly avoid systemic risks”.

The lack of specific action for the real estate sector, with the maintenance of the five-year rate, indicates that the priority, in response to the slowdown, is to stimulate consumption, with more loans, and to reduce the risk derived from local indebtedness.

Leader Xi Jinping himself had described these regional debts earlier this year as “one of China’s biggest economic and financial risks”. Later, the government added that they would be tackled with a sequence of measures, not all at once.

In an analysis note distributed on Saturday (19), the Goldman Sachs bank evaluated that “the risk of systemic concerns remains low in China”, despite the volatility in the financial market, which may “require a more coordinated effort” from Beijing.