BEIJING, CHINA – JUNE 13: A woman walks past the People’s Bank of China (PBOC) building on June 13, 2023 in Beijing, China.
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China’s central bank lowered its key medium-term lending rates on Thursday, in a much anticipated move as the economy’s post-Covid recovery continues to lose momentum.
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% to 2.65%.
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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% to 1.9%, 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 checks.
Shortly after the announcement, the dollar gained 0.2% against the onshore Chinese yuan to 7.1744 — its lowest levels since November.
The Shanghai Composite was 0.3% higher while the Shenzhen Component was flat. Hong Kong’s Hang Seng index rose 1.3% and the Hang Seng Tech index jumped by more than 2%.
Signaling awareness
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 signaling 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.
