China lowered the benchmark lending rates and cut major short and long-term interest rates on Monday, in a move to boost growth in the world’s second-largest economy just days after a meeting held by the Communist Party’s top decision-making body leadership meeting.
The People’s Bank of China (PBOC) said on Monday it would cut the seven-day reverse repo rate to 1.7% from 1.8%, the first such cut since August 2023, and also pledged to improve the mechanism of open market operations.
Minutes later, the central bank cut benchmark lending rates by the same margin at the monthly fixing. The one-year loan prime rate (LPR) was cut to 3.35% from 3.45% previously, while the five-year LPR was reduced to 3.85% from 3.95%.
Later on the same day, the PBOC lowered the rates on its standing lending facility (SLF), a policy instruments for the central bank to injects liquidity to the market via policy banks and commercial banks, by the same amount. The overnight, 7-day and one-month SLF rates were cut by 10 basis points to 2.55%, 2.7% and 3.05%, respectively.
The instant adjustments of LPR after the reduction of the 7-day reverse repo indicates that the quotation of LPR will take more reference from the central bank’s short-term policy rates, said a person close to the PBOC.
The official Xinhua news agency cited unnamed sources close to the PBOC as saying the “decisive” rate cut showed its determination to bolster the recovery and it was in response to the plenum’s aims to achieve this year’s growth target.
The PBOC also made adjustments to its lending programme, saying collateral requirements for medium-term lending facility loans will be lowered from July.
