China’s central bank cuts rates on medium-term loans

China's central bank cuts rates on medium-term loans

China’s central bank on Monday cut the interest rates of its medium-term lending facility (MLF) loans and reverse repos by 10 basis points amid the country’s efforts to lower lending costs and further shore up economic growth.

The People’s Bank of China (PBOC) lowered the rate of 700 billion yuan (about Ksh.12.5 trillion) worth of one-year MLF to financial institutions to 2.85 percent, compared with 2.95 percent on the previous operation.

The PBOC also added 100 billion yuan (Ksh.1.7 trillion) of funds into the market via seven-day reverse repos at an interest rate of 2.1 percent Monday, down from 2.2 percent.

With 500 billion yuan (Ksh.8.9 billion) worth of MLF and 10 billion yuan (Ksh.176.8 billion) worth of reverse repos maturing on the same day, the aforementioned moves will lead to a net liquidity injection of 290 billion yuan (Ksh.5.1 billion) into the market.

The MLF tool was introduced in 2014 to help commercial and policy banks maintain liquidity by allowing them to borrow from the central bank using securities as collateral.

A reverse repo is a process in which the central bank purchases securities from commercial banks through bidding, with an agreement to sell them back in the future.

China will continue to implement prudent monetary policies that are flexible and appropriate, with liquidity maintained at a reasonable and ample level, said a tone-setting economic work conference held last December.

1 Yuan = Ksh.17.8

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