China lowers policy loan rates for first time since April 2020

A woman walks past the People’s Bank of China headquarters in Beijing, China.

Jason Lee | Reuters

China’s central bank cut borrowing costs on its medium-term loans for the first time since April 2020 on Monday, defying market expectations, to cushion any economic slowdown.

The People’s Bank of China (PBOC) said it was lowering the interest rate on 700 billion yuan ($110.19 billion) of one-year medium-term loans (MLF) to selected financial institutions by 10 basis points at 2.85% compared to 2.95% in previous operations.

Thirty-four of 48 traders and analysts, or 70% of all participants, polled by Reuters last week predicted no change in MLF rates, although a growing number of market participants are beginning to forecast a rate cut .

With 500 billion yuan of MLF loans maturing on Monday, the operation resulted in a net injection of 200 billion yuan of new funds into the banking system.

The central bank also cut borrowing costs for seven-day reverse repurchase agreements, or repos, by the same margin to 2.10% from 2.20%, when it offered 100 billion yuan. additional reverse repos in the banking system on the day, compared with $10 billion of this short-term liquidity tool expected on Monday.

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