SHANGHAI (Reuters) – On Wednesday, the People’s Bank of China (PBOC) reduced the interest rate on its medium-term loans to banks, aligning with broader policy measures aimed at stabilizing the country’s struggling economy.
The PBOC announced a rate cut on 300 billion yuan ($42.66 billion) of one-year Medium-Term Lending Facility (MLF) loans, lowering the rate from 2.30% to 2.00% for selected financial institutions.
In Wednesday’s operation, bid rates ranged between 1.90% and 2.30%, with the total outstanding balance of MLF loans now reaching 6.878 trillion yuan, according to the central bank’s online report. A total of 591 billion yuan worth of MLF loans expired this month.
This move follows Beijing’s announcement on Tuesday of its largest stimulus package since the pandemic, aimed at combating deflationary pressures and steering the economy back toward its growth objectives.
“The partial rollover wasn’t unexpected, especially with the planned reduction in the reserve requirement ratio (RRR),” said Frances Cheung, head of FX and rates strategy at OCBC Bank, referencing the central bank’s upcoming 50-basis-point reduction in the amount of cash banks must hold as reserves.
Cheung also noted that the PBOC’s disclosure of the highest and lowest bid rates signals an effort to make the MLF more demand-driven, reducing its role as a primary policy tool.
Additionally, on the same day, the PBOC injected 196.5 billion yuan into the financial system via 14-day reverse repos, keeping the interest rate unchanged at 1.85%.
($1 = 7.0318 Chinese yuan)
