China’s central bank on Tuesday cut a short-term borrowing rate for the first time in 10 months to help restore market confidence and underpin the post-pandemic recovery in the world’s second-largest economy.
The loan rate cut signals possible easing in long-term rates in the coming week and beyond, as demand and investor sentiment weaken, increasing the need for urgent stimulus to support growth.
The People’s Bank of China cut its seven-day reverse repo rate by 10 basis points to 1.90%, injecting 2 billion yuan ($279.97 million) through the short-term bond facility.
“The central bank’s decision to cut the rate did not come as a complete surprise to the market,” said Ken Cheung, chief foreign exchange strategist at Mizuho Bank.
“Commercial banks have already lowered deposit rates, and central bank governor Yi Gang also recently mentioned strengthening countercyclical adjustment.”
The yuan hit a six-month low of 7.1680 against the dollar following the decision, while yields on China’s benchmark 10-year government bonds fell to a new 7.5-month low.
Cheung said China’s central bank may have been trying to mitigate the impact of any future easing on the yuan ahead of this week’s Federal Reserve monetary policy meeting.
China remains an exception among global central banks as it eases monetary policy to support growth while its major counterparts raise interest rates to contain the rise in consumer prices.
Source: Terra
Rose James is a Gossipify movie and series reviewer known for her in-depth analysis and unique perspective on the latest releases. With a background in film studies, she provides engaging and informative reviews, and keeps readers up to date with industry trends and emerging talents.
