The People’s Bank of China (PBOC) surprised markets by cutting a key interest rate for the second time in 2022 as the country’s economy struggles to grow.
The central bank reduced the rate on its one-year medium-term lending facility (MLF) loans by 10 basis points, from 2.85 to 2.75 percent. The move is aimed at keeping the liquidity of the banking system “reasonably ample.”
The PBOC offers MLF loans to some financial institutions, with current loans totaling 400 billion yuan (approximately $59 billion). The bank also cut down its main rate at which it offers short-term liquidity to banks, from 2.1 percent to 2 percent.
A recent Reuters poll of market watchers had predicted the PBOC to keep the MLF rate unchanged. This is the first time since January 2022 that the PBOC reduced both these rates. The central bank had earlier signaled that it was reluctant to cut down rates due to multiple economic issues, such as inflation, rising debt, and the pressure on yuan….