China cuts third key policy rate to prop up economy

  • China’s central bank on 15 Jun cut the interest rate on its medium-term funding for financial institutions, marking its third policy rate change in as many days amid efforts to support the slowing economy through renewed monetary loosening.
  • The People’s Bank of China (PBOC) lowered the rate on its one-year medium-term lending facility (MLF) loans to financial institutions from 2.75 to 2.65%.
  • In a statement, the central bank said that it injected CNY237bn (USD33bn) through the liquidity tool.
  • Overnight, the US Federal Reserve voted to hold its benchmark lending rate at between 5 and 5.25%, citing a robust job market and modest economic expansion, ending a run of 10 straight increases since Mar 22.
  • The monetary policy divergence has widened the gap between China and US interest rates, continuing to place pressure on China’s capital outflows.
  • The policy rate changes also indicate that bigger easing may be on the agenda of Beijing’s policymakers.
  • The 24-member Politburo, a prime decision-making body headed by President Xi Jinping, is due to analyse the economic situation and decide its next moves in late July.
  • China’s new bank loans totalled CNY12.68tn in the first five months of 2023, up 16.6% from a year earlier, government data showed.

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