- The People’s Bank of China cut the interest rate on 237 billion Chinese yuan ($33 billion) one-year medium-term lending (MLF) facilities to some financial institutions by 10 basis points.
- The Shanghai Composite rose 0.3%, while the Shenzhen Component was flat. Hong Kong’s Hang Seng Index rose 1.3% and the Hang Seng Tech Index rose more than 2%.
BEIJING, CHINA – JUNE 13: A woman walks past the People’s Bank of China (PBOC) building on June 13, 2023 in Beijing, China.
China News Service | China News Service | Getty Images
The Chinese central bank cut its main medium-term lending rates on Thursday, a much-anticipated move as the economy’s recovery from the coronavirus crisis continues to lose momentum.
The People’s Bank of China cut the interest rate on 237 billion Chinese yuan ($33 billion) one-year medium-term lending (MLF) facilities to some financial institutions by 10 basis points — to 2.65% from 2.75%.
Most recently, the central bank cut the interest rate on 400 billion yuan of one-year MLF loans in August, making Thursday’s move the first such cut in ten months.
China’s medium-term credit facility is a funding channel that allows the central bank to inject liquidity into the banking system and influence interest rates on certain loans.
Earlier this week, the central bank cut its seven-day reverse repo rate by 10 basis points from 2% to 1.9%, injecting 2 billion Chinese yuan through its seven-day repo operations. China’s largest state-owned commercial banks cut deposit rates last week, according to CNBC audits.
Shortly after the announcement, the dollar gained 0.2% against the Chinese onshore yuan to 7.1744 – its lowest level since November.
The Shanghai Composite rose 0.3%, while the Shenzhen Component was flat. Hong Kong’s Hang Seng Index rose 1.3% and the Hang Seng Tech Index rose more than 2%.
The central bank’s MLF cut is a sign of Chinese politicians’ “readiness” to step in to stimulate the economy, said Brendan Ahern, chief investment officer of KraneShares.
“They signal their awareness and willingness to support the economy.” [a] “I’ve come to realize that the post-COVID recovery is proceeding at a very tepid or gradual pace,” Ahern told CNBC’s Street Signs Asia.
He added that the decision on the key lending rate, scheduled for June 20, is also likely to result in a cut as the government rolls out more support measures to boost demand.