THE People’s Bank of China (PBOC) on Monday ramped up its monetary policy, including cuts in a key short-term rate and market-based benchmark lending rates, in the latest move to strengthen countercyclical adjustment and increase support for the real economy.
Analysts said the decisive move at a critical moment shows the bank’s resolve to bolster sustained economic growth. The move also echoes the just-concluded third plenary session of the 20th Central Committee of the Communist Party of China, which stressed that the country must remain firmly committed to accomplishing the goals for this year’s economic and social development.
Dismissing Western media outlets’ smearing of the Chinese economy, analysts said that the Chinese authorities are moving in the right direction to achieve the gross domestic product growth target of about 5 percent since stepped-up fiscal and monetary policies will revive market confidence and boost effective demand.
Starting from Monday, the interest rate on seven-day reverse repos —a widely used liquidity injection tool — was cut from 1.8 percent to 1.7 percent, in a bid to strengthen countercyclical adjustments to better support the real economy, according to a statement on the central bank’s website.
It was the first reduction since August 2023.
The central bank held the reverse repo rate and medium-term lending facility rate intact since August to stabilize the yuan’s exchange rate and prevent risks. However, given growing pressure on the economy, especially weak demand, countercyclical adjustments should be strengthened, Wen Bin, chief economist at China Minsheng Bank, told the Global Times on Monday.
“The central bank’s decisive move reflects its determination to bolster economic growth. It also echoes the Chinese authorities’ firm commitment to accomplishing the goals for this year’s economic and social development, stressed during the just-concluded third plenary session,” Wen said.
PBOC Governor Pan Gongsheng said in June that the bank will continue to reform market-based interest rate adjustment mechanisms, for example, by using a single short-term rate as a main policy rate to guide markets.
Analysts said that lower interest rates will flow through the markets to the real economy, which will help reduce the real economy’s comprehensive financing costs, revive social expectations and consolidate the economic recovery’s momentum.
On Monday, the PBOC cut the one-year loan prime rate (LPR) to 3.35 percent from 3.45 percent, while cutting the over-five-year LPR by 10 basis points to 3.85 percent, according to a separate statement on the PBC website.
These figures, released each month, serve as pricing reference rates for banks. “Monday’s cut can save about 57 yuan in monthly payments, or about 21,000 yuan in total, for a new homebuyer with a 30-year mortgage of 1 million yuan,” Yang Delong, chief economist at Shenzhen-based First Seafront Fund, told the Global Times on Monday.
“Following the third plenary session, policies to stabilize growth will be gradually rolled out, and as a result, China’s economic recovery is expected to strengthen in the second half of the year,” Yang said.
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