China central bank makes unexpected rate cut
The People’s Bank of China cut the rate on the medium-term lending facility (MLF) overnight, with a 15bp cut down to 2.5%.
The People's Bank of China cut the rate on the medium-term lending facility (MLF) overnight, with a 15bp cut down to 2.5%.
Analysts told Reuters, the move opened the door to a potential cut in China's lending benchmark loan prime rate (LPR) next week.
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The Chinese central bank also gave the economy a cash boost with an injection of 204 billion yuan through seven-day reverse repurchase agreement, while cutting borrowing costs by ten basis points to 1.80% from 1.90% previously.
Central bank action has been triggered by falling credit growth and rising deflation risks in July to help stop the slowdown, amid concerns about defaults in the Chinese property market.
The rate cut also follows weak growth figures from the Asian giant, which fell into deflation for the first time since 2021 last week.
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In a Reuters poll of 26 market watchers conducted this week, 20 participants, or 77%, predicted that the central bank would leave the MLF rate unchanged. Only six respondents forecast a marginal rate reduction.
The MLF rate is a guide to the LPR. Markets mostly use the medium-term policy rate as a precursor to any changes to the lending benchmarks. The monthly fixing of the LPR is due next Monday.
China remains an outlier among global central banks as it has loosened monetary policy to shore up a stalling recovery whereas others have been in tightening cycles as they battle high inflation.
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