The People's Bank of China (PBOC) announced a reduction in two key benchmark interest rates on October 21 to stimulate the economy amid ongoing challenges such as weak consumption and a real estate crisis.

During this period, the yuan has depreciated by 1% against the dollar, adding to concerns about market stability.

Investor sentiment remains cautious, as reflected in mixed results on the Shanghai stock exchange, which closed 0.4% higher despite the rate cut.

The aim of these cuts is to bolster the struggling real estate sector and stimulate consumer spending, which has been disappointing.

Specifically, the mortgage reference rate was lowered to 3.60% from 3.85%, exceeding expectations for a smaller cut.

These recent cuts are part of a broader strategy by the PBOC, following previous reductions in July, aimed at supporting infrastructure development and stabilizing the property market.

This rate cut follows China's weakest growth in a year and a half, with a reported GDP growth of 4.6% for the third quarter.

Analysts expect further measures from the central bank in the coming weeks to address the ongoing property crisis and meet the government's growth target of around 5% for 2024.

The one-year Loan Prime Rate (LPR), which affects corporate and most household loans, was reduced by 25 basis points, while the five-year LPR, the benchmark for mortgage rates, was also cut.

Concerns over deflation persist as consumer spending remains weak, with the Consumer Price Index (CPI) rising only 0.4% year-on-year in September.

Despite the rate cuts, investor confidence remains tepid due to a lack of details regarding the implementation and scale of the announced fiscal stimulus measures.

Investors are awaiting more information on the fiscal stimulus measures promised by the Chinese government, with specific plans expected after the National People's Congress meeting.