Daily Management Review

Central Bank of China lowers key rate for the first time since 2015


On Tuesday, the People’s Bank of China lowered its key interest rate, which should help reduce the cost of financing amid a slowdown in economic growth.

The bank said in a statement that the rate via the medium-term lending facility (MLF) will be lowered to 3.25% from 3.3%.

The central bank uses this program to inject liquidity into commercial banks, and the rate on it greatly affects the loan rate for first-class borrowers (Loan Prime Rate).

On Tuesday, the central bank poured 400 billion yuan ($ 57 billion) into the banking system as part of the MLF prpgram. This amount is equal to the amount of loans maturing on Tuesday.

China has not lowered its key interest rate since 2015. According to analysts, this reflects intention of the authorities to restrain real estate prices.

However, the continued slowdown in the economy and the trade conflict with Washington forced the central bank to take other measures to mitigate monetary policy. For example, it lowered reserve standards for commercial banks and allowed the yuan to decline against the US dollar.

The measure taken on Tuesday should reflect on the cost of borrowing, but it will not apply to loans already issued and will not affect deposit rates.

Monetary easing in other key economies has created room for lower rates in China, despite rising inflation. Last week, the Fed lowered rates for the third time this year. The Central Bank of China raised the MLF rate in 2018 after tightening the Fed's policy.

source: dowjones.com