China cuts rates on policy loans for first time since April 2020

China cuts rates on policy loans for first time since April 2020

© Reuters. FILE PHOTO: The headquarters of the People’s Bank of China, the central bank, is pictured in Beijing, China, as the country is hit by an outbreak of the new coronavirus, February 3, 2020. REUTERS/Jason Lee

SHANGHAI (Reuters) – China’s central bank on Monday cut the borrowing costs of its medium-term loans for the first time since April 2020, defying market expectations, to cushion any economic slowdown.

The People’s Bank of China (PBOC) said it was lowering the interest rate on 700 billion yuan ($110.19 billion) worth of one-year medium-term lending facility (MLF) loans to some financial institutions by 10 basis points to 2.85% from 2.95% in previous operations.

Thirty-four out of the 48 traders and analysts, or 70% of all participants, polled by Reuters last week predicted no change to the MLF rates, although a rising number of market participants start to forecast a rate cut.

With 500 billion yuan worth of MLF loans maturing on Monday, the operation resulted a net 200 billion yuan of fresh fund injections into the banking system.

The central bank also lowered the borrowing costs of seven-day reverse repurchase agreements, or repos, by the same margin to 2.10% from 2.20%, when it offered another 100 billion yuan worth of reverse repos into the banking system on the day, compared with 10 billion worth of such short-term liquidity tool due on Monday.

($1 = 6.3524 )

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