China’s central bank on Tuesday made a surprise cut to one of its key lending rates in a bid to shore up sputtering growth in the world’s second largest economy, media reports said.
The cut to the 7-day reverse repo rate the first since August last year will boost liquidity in the banking system and make short term loans cheaper. The rate will drop to 1.9 per cent from 2 per cent, according to the People’s Bank of China, CNN reported.
The amount of lending affected is small, but the move is significant as it signals that the PBOC is likely to cut several other key interest rates later this month, analysts say.
The rate cut reveals “growing concerns among policymakers” about the health of China’s recovery, Capital Economics analysts said on Tuesday, CNN reported.
It is likely to be followed by similar reductions to a medium-term lending rate, and the benchmark Loan Prime Rate (LPR) on Thursday and next Tuesday respectively, given that all three rates typically move in tandem, they added. The last time China slashed its LPR was also in August last year.
“The rate cut came earlier and sharper than our and market expectations, highlighting the sense of urgency to alleviate economic momentum and business confidence,” said Becky Liu, head of China macro strategy for Standard Chartered Bank, CNN reported.
Multiple indicators show that China’s recovery is waning following an initial burst of activity in the first few months of this year after the lifting of Covid-19 restrictions.
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