China Cuts Short Term Lending Rate For First Time Since 2015

centarlbkchina june25 18nov19

China's central bank unexpectedly cut its short-term lending rate on Monday, which was the first reduction in over four years, in a bid to boost slowing growth.

The People's Bank of China lowered the seven-day repurchase rate to 2.50 percent from 2.55 percent. That was the first cut since October 2015.

Earlier this month, the bank had cut its medium term lending rate for the first time since 2016 as the economy grew at the slowest pace in nearly three decades.

The one year medium-term lending facility rate was lowered by five basis points to 3.25 percent from 3.30 percent.

Capital Economics expects further cuts in the coming months that shall pave the way for lower interbank rates and prompt banks to cut lending rates.

"We anticipate another 70 basis points of cuts to the 7-day reverse repo rate by the middle of next year," Capital Economics Senior China Economist Julian Evans-Pritchard said.

"The PBOC will focus more on the downbeat signals from easing core consumer price inflation and deepening factory-gate deflation, as well as broader evidence of economic weakness," the economist added.

The economy grew only 6 percent in the third quarter, the weakest since 1992.

The prolonged trade disputes with the United States have weighed heavily on foreign demand and investment.

The International Monetary Fund forecast China's growth to slow to 6.1 percent this year and to 5.8 percent next year.

In October, the bank left its benchmark, one-year loan prime rate, unchanged at 4.20 percent and the five-year lending rate at 4.85 percent.

This new lending rate replaced PBoC's traditional benchmark lending rate in August.

Capital Economics expects a five basis points reduction in the LPR, when the latest is published this Wednesday.

The firm also expect the central bank to take further steps ahead to boost lending amid sluggish growth.

Separately, official data showed on Monday that the foreign direct investment, or FDI, into China grew 7.4 percent year-on-year in October to CNY 69.2 billion. In the January to October period, the FDI inflow rose 2.9 percent from a year ago.

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