China Central Bank Cuts Key Policy Interest Rate To Boost Economy

China's central bank last lowered the rate on 400 billion yuan of one-year MLF loans in August, making Thursday’s move the first such cut in 10 months

Earlier this week, the central bank cut its seven-day reverse repurchase rate by 10 basis points from 2 per cent to 1.9 per cent, injecting 2 billion Chinese yuan through its seven-day repos.

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In a much anticipated move, the central bank of China lowered its key medium-term lending rates on Thursday as the country’s economic recovery post-Covid continues to lose momentum, CNBC reported. The People’s Bank of China lowered the rate on 237 billion Chinese yuan ($33 billion) of one-year medium-term lending facility (MLF) loans to some financial institutions by 10 basis points — from 2.75 per cent to 2.65 per cent.

According to the report, the central bank last lowered the rate on 400 billion yuan of one-year MLF loans in August, making Thursday’s move the first such cut in 10 months.

China’s medium-term lending facility is a funding channel introduced to allow the central bank to inject liquidity into the banking system and influence interest rates for certain loans.

Earlier this week, the central bank cut its seven-day reverse repurchase rate by 10 basis points from 2 per cent to 1.9 per cent, injecting 2 billion Chinese yuan through its seven-day repos. China’s largest state-owned commercial banks cut deposit rates last week, according to CNBC report.

Shortly after the announcement, the dollar gained 0.2 per cent against the onshore Chinese yuan to 7.1744 — its lowest levels since November.

The Shanghai Composite was 0.3 per cent higher while the Shenzhen Component was flat. Hong Kong’s Hang Seng index rose 1.3 per cent and the Hang Seng Tech index jumped by more than 2 per cent.

The central bank’s MLF cut is a sign of Chinese policymakers’ “willingness” to step in to help prop up the economy, KraneShares’ Chief Investment Officer Brendan Ahern said.

“They are signalling their awareness and willingness to support the economy, it’s [a] recognition that the post-Covid recovery is taking place at a very tepid or incremental pace,” Ahern told CNBC’s “Street Signs Asia.” He added that the loan prime rate decision, which is scheduled for June 20, is also expected to deliver a cut as the government embarks on further support measures to boost demand.