China trimmed another key interest rate Thursday — the second cut this week — after a series of official data painted a gloomy picture of the post-Covid recovery in the world’s second largest economy.
The People’s Bank of China lowered its key policy rate — the medium-term lending rate — from 2.75% to 2.65%. The one-year rate dictates the cost of its lending to banks.
It was the first such rate reduction since last August, and largely expected following a surprise cut by the central bank Tuesday to China’s seven-day reverse repo rate.
The trimming of the repo rate — also by 0.1 percentage points to 1.9% — marked its first since August. The move will boost liquidity in the banking system and make short-term loans cheaper, as officials continue to try to shore up a sputtering economy.
On Thursday, new government data underscored the uphill battle the country is facing, with shoppers pulling back and factories slowing.
Retail sales rose 12.7% in May compared with a year ago, but that was down from 18.4% growth the previous month and less than economists were expecting. Industrial production grew 3.5%, in line with consensus estimates, but growth was weaker than in April.
Meanwhile, even more young people in China’s towns and cities are out of work.
Urban youth unemployment — already at record levels — hit another new high in May, reaching 20.8%. That was a slight uptick from April data, which showed that the jobless rate for people between 16 and 24 years old had reached 20.4%. Rural unemployment isn’t included in official data.
On a recent visit to China, JPMorgan (JPM) CEO Jamie Dimon expressed alarm over the figure. “That’s a scary number,” he said in a Bloomberg TV interview. “They need [economic] growth.”
The youth unemployment rate could get even worse when a record 11.6 million college students enter the job market this summer, as estimated by the education ministry earlier this year.
The majority of latest economic data “are below the already-low consensus,” said Macquarie’s chief China economist Larry Hu, noting that the weakness raised the “urgency for more stimulus.”
“The latest rate cuts suggest that policymakers clearly feel the urgency to step up policy support,” he wrote in a report Thursday.
