China's central bank has implemented yet another minor market rate cut that will have no significant impact on the economy's sluggish growth.
The cut in a key short-term policy rate and the injection of additional liquidity into the financial system came as a surprise on Monday morning, after the bank left more prominent one- and five-year rates unchanged on Friday.
The small reduction came just hours before the release of figures showing a record level of unemployment among young people not in schools (colleges and universities).
The People's Bank of China cut the 14-day reverse repurchase interest rate by 10 basis points to 1.85%, injecting 74.5 billion yuan (US$10.6 billion) of liquidity.
The latest cut reflects the reduction in the 7-day reverse repo rate in July, during which the PBOC did not conduct a 14-day reverse repo operation, said Zhiwei Zhang, an economist at Pinpoint Asset Management.
The central bank also injected CNY160.1 billion through 7-day reverse repo agreements, keeping that interest rate unchanged at 1.7%, it announced on Monday.
Economists now expect the PBoC to lower its 7-day reverse repo rate—currently considered the key rate for pricing benchmark lending rates—in the coming months, as the Fed's cut allows for more monetary policy easing.
Before that happens, the economy is likely to experience a further decline in activity and another drop in inflation, potentially leading to a repeat of the deflationary conditions seen earlier this year.
Coincidentally, the rate adjustment came on the same day China reported another undesirable record: a new high for youth unemployment in urban areas.
Reuters and other news outlets reported that China's youth unemployment rate in August rose to its highest level since the new system of record-keeping began in December.
Figures from the National Bureau of Statistics on Monday showed the jobless rate for people aged 16 to 24, not in school, reached 18.8% in August, up from 17.1% in July and 13.2% in June.
China's urban unemployment rate across all age groups increased to 5.3% in August, compared to 5.2% in July and 5% a year ago.
"It’s becoming increasingly difficult for young people to find high-paying jobs, as the high value-added city services sectors that used to absorb many fresh graduates—particularly in real estate, finance, and IT—have been in sharp contraction over the past three years," said Dan Wang, chief economist at HSBC.
