China’s low interest rates are failing to spur lending in the economy, creating a challenge for policy makers as they try to bolster the nation’s fragile recovery. | Fin24
Central bank data on Friday showed a sharp slowdown in aggregate financing, a broad measure of credit, in July, as new loans and corporate bond issuance weakened.
The People’s Bank of China has refrained from cutting policy interest rates since lowering them in January and has focused instead on persuading banks to boost their lending, especially to targeted sectors like small businesses. However, defaults in the property sector and a weakening economy have made banks reluctant to lend. 1.1 trillion yuan to use to finance infrastructure projects.
The central bank may be ready to curb some of the excess liquidity sloshing in the banking system Monday through itsmedium-term lending facility operation. Eight out of 12 economists and analysts polled by Bloomberg forecast it will withdraw cash through the MLF for the first time this year. The surprisingly sharp retreat in China’s credit in July should put policymakers on alert - aggregate social financing slumped to its lowest level since 2017.
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