China cuts key lending rate by 15bps to 2.5%, most since 2020

August 15, 2023 (MLN): The People’s Bank of China (PBoC) unexpectedly lowered the one-year medium-term lending facility (MLF) rates by 15 bps to 2.5% to support its economy which is facing new threats from a deteriorating housing market and low consumer spending, the latest data issued by the PBoC showed today.

Yuan fell to the lowest level since November 2022 against the US Dollar.

Yuan falls after surprise rate cut

The National Bureau of Statistics (NBS) said in a statement that the domestic demand situation was still “insufficient” and the “economy’s recovery foundation still needs to be strengthened.”

China needs to “step up macroeconomic policy adjustment, and focus on expanding domestic demand, lifting confidence and preventing risks,” the statement added.

To note, this was the second time this year that the central bank lowered the MLF rate, after a 10 bps cut on June 13.

This move has opened the door to a potential cut in China's lending benchmark loan prime rate (LPR) next week, analysts say.

The PBoC issued a total of CNY 401 billion in MLF loans to financial institutions on Friday, with CNY 400bn of MLF loans due to mature this month, at 2.5%.

In addition, the central bank injected CNY 204bn through a seven-day reverse repo operation while cutting borrowing costs by 10 bps to 1.8%.

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