China’s Central Bank Cuts Policy Rate to Bolster Slowing Economy
The People’s Bank of China (PBOC) has implemented another interest rate reduction as the country’s economy faces a slowdown. On Monday, the central bank lowered the 14-day reverse repurchase rate to 1.85%, down from the previous 1.95%.
To alleviate liquidity concerns in the banking system, the PBOC injected 74.5 billion yuan (approximately $10.6 billion), as per Reuters. The move marks the first time in months that the PBOC has provided 14-day cash at a lower rate, signaling its intention to ease monetary conditions.
This monetary stimulus comes ahead of the National Day holidays, commencing on October 1, 2024. The rate cut aligns the 14-day repo rate with the 7-day repo rate, which was lowered in July. Historically, China employs 14-day repos to assist banks in managing extended holidays; the last such intervention occurred before a spring break in February.
Commenting on the rate cut’s implications, Zhang Zhiwei, Chief Economist at Pinpoint Asset Management, stated: “This rate cut should not be interpreted as a significant monetary policy easing move by the PBOC. However, I anticipate that in the coming months, the PBOC will also cut the 7-day repo rate and the reserve requirement ratio.”
China’s economy is facing deflationary pressures and has struggled to gain traction despite implementing stimulus measures aimed at stimulating domestic spending. The previous PBOC rate cut occurred in July, affecting both short-term and long-term benchmark lending rates.
