China: PBC lowers its medium-term interest rate

SHANGHAI, Jan 17 (Reuters) – The People’s Bank of China (PBOC) cut its medium-term credit facility rate on Monday for the first time since April 2020, leading some analysts to expect further monetary easing in the year for stem the economic slowdown.

The BPC announced that it was lowering by 10 basis points, to 2.85%, the one-year medium-term credit facility rate (MLF) for certain financial institutions.

Nearly 70% of traders and analysts polled by Reuters last week expected it to keep its rate unchanged.

The world’s second-largest economy has shown signs of slowing after recovering rapidly from the COVID-19 health crisis and uncertainties over the financial health of property developers and the rapid spread of the Omicron variant of the coronavirus are weighing on the outlook. .

“The PBC’s decision to ease monetary policy in early January suggests that downward pressure on the economy has intensified in late 2021 and room for improvements in the first quarter of this year is not huge,” said Ken Cheung, head of Asian currency strategy at Mizuho Bank.

Analysts said the magnitude of the decline and the timing came as a big surprise and more support may follow.

“The 10 basis point cut was larger than expected, suggesting authorities have become more concerned about the weak economy,” said Carlos Casanova, an economist at Union Bancaire Privée in Hong Kong. specifying that he expected a 100 basis point drop in the banks’ reserve requirement ratio this year.

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

The BPC also lowered the interest rate on its seven-day reverse repo operations from 2.20% to 2.10%. (Winni Zhou and Andrew Galbraith report, French version Laetitia Volga, edited by Blandine Hénault)

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