BEIJING – China’s central bank reduced on Monday the interest rates on repurchase agreements, or repos – one of its main short-term liquidity tool – for the first time in more than four years.
Through this instrument, under which securities are sold under an agreement that they will be bought back at a later date, the People’s Bank of China (PBOC) injected 180 billion yuan ($25.67 billion) into the market through seven-day reverse repos at an interest rate of 2.50 percent, a drop of five basis points from 2.55 percent.
Economic research consultancy Capital Economics said this move, which will reduce the rate charged to banks needing short term liquidity, aims to lower lending rates between banks and make them less reluctant to cut the rates they charge for loans.
The reduction in the seven-day reverse repurchase rate comes on the heels of a cut in the interest rate of the central bank’s medium-term lending facility (MLF) for the first since 2016.
On Nov. 5, the PBOC announced it was lowering the rate on one-year MLF loans by five basis points, which would affect an injection of 400 billion yuan into the financial system.
Meanwhile, financial website Yicai reported Saturday that the PCOB released a quarterly report in which it said it would continue maintaining a prudent monetary policy while incorporating minor adjustments based on changes in economic growth and price levels.
Capital Economics analyst Julian Evans-Pritchard described these cuts as minimal but said they show that the central bank “is starting to take a more proactive approach to nudging down borrowing costs.”
“Looking ahead, with economic growth still slowing and unlikely to bottom out in the near-term, we think the PBOC will take further steps to shore up lending, which has weakened recently,” he added.