China cuts key rate after 10months

In a widely anticipated move, China’s central bank has lowered its key medium-term lending rates as the country’s post-Covid economic recovery shows signs of slowing down.

The People’s Bank of China reduced the rate on 237 billion Chinese yuan ($33 billion) of one-year medium-term lending facility (MLF) loans to select financial institutions by 10 basis points, bringing it down from 2.75% to 2.65%. This marks the first cut in this lending rate in 10 months, following a previous reduction in August.

The medium-term lending facility is a funding channel introduced by the central bank to inject liquidity into the banking system and influence interest rates for specific loans. The move comes after the central bank recently lowered its seven-day reverse repurchase rate by 10 basis points, injecting 2 billion Chinese yuan through its seven-day repos. State-owned commercial banks in China also reduced deposit rates last week.

Following the announcement, the onshore Chinese yuan weakened against the US dollar by 0.2%, reaching its lowest levels since November. In the stock market, the Shanghai Composite rose by 0.3%, the Shenzhen Component remained flat, Hong Kong’s Hang Seng index increased by 1.3%, and the Hang Seng Tech index saw a gain of over 2%.

Some expert see it as a recognition that the post-Covid recovery is progressing at a slow pace. Ahern also expects a rate cut during the loan prime rate decision on June 20, as the government implements further measures to stimulate demand and support the economy.

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