Business & Economy

China central bank makes record cut in lending rates

Beijing, Apr 15 (efe-epa).- The People’s Bank of China (PBOC) on Wednesday slashed interest rate of its main lending tool by 20 basis points, from 3.15 percent to 2.95 percent, marking its largest drop so far.

The cut in rates of Medium-term Lending Facility (MLF) affects an injection of 100 billion yuan ($14.174 million) into the financial system and will be valid for one year.

On Mar. 30, the PBOC made the largest cut in interest rates since 2015 in seven-day reverse repurchase agreement rates, one of its main liquidity injection tools, bringing them to an all-time low.

The central bank had earlier lowered its MLF by five basis points in November and by 10 basis points in February.

The consulting firm Capital Economics noted that “the PBOC didn’t provide any explanation for the change but the move appears intended to lower funding costs for banks”, which would result in lowering of interest rates for their clients.

“Indeed, today’s MLF cut makes it almost certain that the Loan Prime Rate (LPR), set by bank quotations which are in turn determined by a spread over the MLF rate, will decline when it is published on Monday,” said Capital Economics analyst Julian Evans-Pritchard.

“With external headwinds mounting and domestic demand struggling to fully recover from the COVID-19 outbreak even as most firms have resumed operations, the PBOC appears to be ramping up the pace of monetary easing,” added Evans-Pritchard.

However, the analyst also underlined that more measures would be required to “ensure the (Chinese) economy gets back on track.” EFE-EPA

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