China lowered the medium-term lending facility (MLF) interest rate by 10 basis pointson Monday, the first time since April 2020 and about one month after it cut the reserve requirement ratio (RRR), a move which experts interpreted as aiming to direct domestic banks to lower market interest rates amid downward economic pressure.
According to a statement published by the People’s Bank of China(PBC), China’s central bank, on Monday, the interest rate for one-year MLF loan stood at 2.85 percent, down from 2.95 percent.
The PBC also cut the open market reverse repo rate to 2.1 percent from 2.2 percent, the PBC statement said.
The interest rate cut was in line with market expectations after the PBC cut the RRR for financial institutions by 0.5 percentage points in December.
The PBC also cut its benchmark lending rate–the one-year loan prime rate (LPR), for the first time in almost two years in December.
The cut to the MLF is a moderate one and was expected by the market, experts said, as they deemed the move as a sort of “notice” to guide the market to lower interest rates.
“As banks have lowered financing costs, their space for lowering interest rates in the capital they lend is also becoming larger,” Xi Junyang, a professor at the Shanghai University of Finance and Economics told the Global Times.
According to Xi, although the macro economic situation is far from emergency territory, downward pressure is mounting on the domestic economy, pushing the government to easemonetary policy.
But he stressed that the MLF cut is a short-term monetary tool that would not exert significant influence on the domestic economy, and the PBC might further loosen monetary policy with another RRR cut in the first half of 2022.
A staff member displays the banknotes and coins included in the 2019 edition of the fifth series of the renminbi at an Industial and Commercial Bank of China (ICBC) branch in Beijing, capital of China, Aug. 30, 2019.(Photo: Xinhua)
