What’s new: China’s central bank lowered interest rates on another short-term monetary policy tool hours after an unexpected cut on a key lending rate, bolstering the probability of further easing moves to help the economy.
The People’s Bank of China (PBOC) late Tuesday lowered the interest rates on the standing lending facility (SLF) by 10 basis points, or 0.1 of a percentage point. After the adjustment, the rate on the overnight SLF was reduced to 2.75%, while rates for the seven-day SLF fell to 2.9% and for the one-month SLF to 3.25%.
The SLF is a monetary tool the regulator began to use in 2013. It lets financial institutions ask the central bank for short-term loans and uses central government bonds and other low-risk securities as collateral. Interest rates are determined on a case-by-case basis.
Ming Ming, chief economist of Citic Securities, said the SLF rate cuts indicate a greater possibility of a rate cut on one-year policy loans, known as the medium-term lending facility (MLF). The MLF rate will be updated June 15. It also raised expectations of further easing moves including cuts on prime lending rates and banks’ reserve requirement ratio.
The context: The SLF rate cuts are in line with the seven-day reverse repurchase rate change unveiled earlier Tuesday, from 2% to 1.9%. It was the first reduction in the rate since August 2022.
PBOC rate changes on the SLF are often followed by similar adjustments in MLF rates, economists said. In 2022, the central bank adjusted the SLF twice, and both times the same adjustments followed for MLF rates.
PBOC Governor Yi Gang last week vowed to step up “countercyclical adjustments,” a shift in language that some analysts said signaled more easing.
Contact reporter Han Wei (weihan@caixin.com) and editor Bob Simison (bob.simison@caixin.com)
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