The People’s Bank of China (PBOC) unexpectedly cut the one-year interest rate on the medium-term lending facility (MLF) to 2.5% on Wednesday. It used to be 2.65%. China’s economy is facing new risks from the worsening real estate market, so it will try to revive the economy. The Chinese yuan depreciated following the announcement of the rate cut. Yields on 10-year bonds fell to their lowest level since 2020.
All but one of the 15 economists surveyed by Bloomberg expected the MLF rate to remain unchanged. The reduction of 0.15 points is the largest since 2020.
The People’s Bank of China (PBOC) also cut the 7-day reverse repo rate, the open market operation rate for money markets, to 1.8%. Previously, it was 1.9%.
“This cut was aggressive, signaling the urgency of stepping up measures to support credit growth,” said Liu Jie, head of China macro strategy at Standard Chartered.
The National Bureau of Statistics announced on the same day that industrial production in July increased by 3.7% from the same month last year. The median forecast of economists surveyed by Bloomberg was for a 4.3% increase, compared with 4.4% in June. Retail sales increased by 2.5% year-on-year. Expectations were for a 4% increase, compared with a 3.1% increase in June.
Fixed asset investment for January to July increased by 3.4% year-on-year. The market was expecting a 3.7% increase.
Original title:China Cuts Key Rate by Most Since 2020 as Economic Woes Deepen(excerpt)
(Adds economic indicators for July and updates)
2023-08-15 01:33:55
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