China unveils another stimulus measure to stimulate demand

25th Sep 2024 07:24

(Sharecast News) - China's central bank on Wednesday slashed it medium-term lending facility from 2.3% to 2.0%, marking the largest reduction of interest rates for one-year loans to financial institutions in history.

Just one day after unveiling a list of measures designed to stimulate demand and put the economic recovery back on track, the People's Bank of China said it was also lending 300bn yuan ($43bn) to financial institutions.

The move, which was widely expected following comments from PBoC governor Pan Gongsheng the previous day, follows a raft of cuts to reserve requirements and lending rates, including for existing home loans.

The easing measures saw the onshore yuan jump to a 16-month high against the US dollar, while stocks in Shanghai rose another 1.2%, extending gains after a massive 4.2% jump the previous day.

The announcements saw many stocks with heavy exposure to China surge on Tuesday as investors placed bets on a recovery in the world's second-largest economy.

Luxury fashion brands like Paris-listed LVMH and Kering both jumped, along with mining stocks like Wall Street's Barrick Gold and London's Endeavour Mining - boosted further by gold prices rising to record highs - and China-based ecommerce brands like Alilbaba and JD.com.

"The problem is, the stimulus measures will take time to show in the economic data," said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

"And more worryingly, they won't do much to fix the country's deepest issues - they won't reverse local governments' heavy debt burden, China's aging population, and will hardly boost the demand-led growth."