China caps weekly policy easing blitz with further rate cuts

SHANGHAI, Jan 21 (Reuters) – China’s central bank said on Friday it had cut interest rates in another key monetary policy tool, capping a week of easing measures that underline authorities’ concern over the outlook for the world’s second largest economy.

In response to questions from Reuters, the People’s Bank of China (PBOC) said it had cut rates on its Standing Lending Facility (SLF) loans by 10 basis points (bps) effective Jan. 17.

Under the SLF program, financial institutions can obtain temporary liquidity from the central bank.

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The bank said it cut the SLF overnight rate to 2.95% from 3.05%, the 7-day rate to 3.10% from 3.20% and the 1-month rate to 3.45% against 3.55%.

Reuters previously reported, citing three sources with direct knowledge of the matter, that the bank planned to cut SLF rates following a series of cuts in China’s key interest rates as Beijing eased monetary policy. to enhance cooling activity.

The economy grew 4% in the fourth quarter – the slowest rate in a year and a half – weighed down by a housing market slump and weak consumption amid sporadic COVID-19 outbreaks.

Analysts expect more easing measures in China in the coming months, even as other major global central banks begin to tighten policy and withdraw unprecedented amounts of liquidity injected into their economies to cushion the impact of the COVID-19 pandemic.

China will appropriately step up its policy support for the economy as it faces further downward pressure, Premier Li Keqiang was quoted by state media as saying.

But Li, in remarks on Thursday, reiterated that the government will not resort to “flood-like” stimulus.

“We see that the cycle of monetary policy easing is just beginning. We expect further reductions,” said Paula Chan, senior portfolio manager at Manulife Investments. She said she expects China’s benchmark 10-year yield to test a low of 2.5%.

The yield on benchmark 10-year Chinese government bonds stood at 2.705% on Friday evening. Earlier today, China’s 2-year yield hit its lowest level since June 2020 and last stood at 2.16%.

On Thursday, China cut prime lending rates (LPRs), benchmark rates for mortgages and other types of loans. On Monday, the PBOC surprised markets by cutting borrowing costs on its medium-term loans for the first time since April 2020, and also lowered a short-term lending rate. Read more

Nomura analysts, however, believe the economic boost from the rate cuts so far will be quite limited, as they have been too small to have any significant impact.

The SLF was created by the PBOC in 2013 to meet the temporary liquidity needs of financial institutions, and its interest rates are determined by the stance of monetary policy and other money market rates in China.

Chinese banks can borrow SLF loans from the PBOC using qualified bonds and other credit assets as collateral.

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Reporting by Xiangming Hou and Ryan Woo in Beijing, and Hongwei Li and Steven Bian in Shanghai; Additional reporting by Samuel Shen and Andrew Galbraith in Shanghai; Editing by Jacqueline Wong, Simon Cameron-Moore and Kim Coghill

Our standards: The Thomson Reuters Trust Principles.

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