China tops forecasts with 8.1% growth in 2021: Central Bank Cuts Interest Rate as Growth Risks Worsen With Omicron

  • China’s economy rebounded in 2021 with its best growth in a decade, helped by robust exports, but there are signs that momentum is slowing on weakening consumption and a property downturn, pointing to the need for more policy support. 
  • Notably, in a stark policy divergence with other major economies, China’s central bank cut its key interest rate for the first time since April 2020 to help bolster an economy that has lost momentum because of a property slump and repeated virus outbreaks. 
  • The People’s Bank of China (PBOC) said it was lowering the interest rate on 700 Bn yuan ($110.19 Bn) worth of one-year medium-term lending facility (MLF) loans to some financial institutions by 10 basis points to 2.85% from 2.95%. 
  • The rate cut is part of Beijing’s efforts to put a floor under growth in a crucial year of leadership transition for the world’s second-largest economy. The biggest challenges to meeting that goal are sporadic outbreaks of the more-infectious Omicron coronavirus variant, and continued falls in property sales reducing housing investment. 
  • While inflation is the dominant concern for central bankers in the U.S. and Europe, China’s relatively stable prices mean policy makers have shifted to boosting growth. Official data Monday showed gross domestic product rose 4% last quarter from a year earlier, the weakest since early 2020.

(Sources: Bloomberg & Reuters)