China cuts interest rates “by surprise” to face the economic slowdown

Updated

Reduces to 2% the rate applied to reverse repurchase operations (repos) maturing in seven days, and to 2.75% the rate applied to medium-term loans maturing in one year

Chinese citizens walking through the commercial district of Beijing.EFE

The People’s Bank of China (BPC) has cut this Monday unexpectedly two of its main references for loans to the country’s banks in an attempt to cope with slowing growth of the Asian giant and the difficulties that the real estate sector is going through.

In this way, the Chinese central bank has lowered by ten basis points, to 2% from 2.10%, the rate applied to reverse repurchase operations (repos) with a maturity of seven days, while it has placed in the 2.75% from 2.85% the rate applied to medium-term loans maturing in one year.

In this sense, the People’s Bank of China announced that “in order to maintain reasonable and sufficient liquidity in the banking system” it injected 400,000 million yuan (57,791 million euros) through the medium-term loan facility, with 2.75% interest, while it carried out a reverse refinancing operation for another 2,000 million yuan (289 million euros) over seven days.

The Economist senior for China from Capital Economics, Julian Evans Pritchard, He has described the rate cuts announced by the People’s Bank of China as “surprise”, although he considers that “they will make little difference in liquidity conditions”.

Instead, the expert points out that the central bank’s main motivation is to “trigger a cut in the prime lending rate” (LPR), set on the basis of quotes linked to the mid-term rate. term, which will reduce interest payments on existing loans, “taking some pressure off indebted companies” as well as alleviating the cost of new loans.

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