China unexpectedly cuts 2 key rates, withdraws cash from banking system
China’s central bank unexpectedly cut a key interest rate for the second time this year and withdrew some cash from the banking system on Monday, to try to revive credit demand to support the Covid-hit economy.
Economists and analysts said they believe Chinese authorities are keen to support the sluggish economy by allowing a widening policy divergence with other major economies that are raising interest rates aggressively, Reuters reports.
The People’s Bank of China (PBOC) said it was lowering the rate on 400 billion yuan ($59.33 billion) of one-year medium-term lending facility (MLF) loans CNMLF1YRRP=PBOC to some financial institutions by 10 basis points (bps) to 2.75%, from 2.85%.
In a poll of 32 market watchers last week, all respondents had forecast the MLF rate would be left unchanged and 29 had predicted there would be a partial rollover.
“The rate cut surprises us,” said Xing Zhaopeng, senior China strategist at ANZ.
“It should be a response to the weak credit data on Friday. The government remains cautious about growth and will not let go.”
New bank lending in China tumbled more than expected in July while broad credit growth slowed, as fresh COVID flare-ups, worries about jobs and a deepening property crisis made companies and consumers wary of taking on more debt.
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