In an attempt to boost China’s slowing economy, the central bank announced late Thursday it will lower lending rates for loans made under the standing lending facility (SLF), a policy tool to inject cash into the banking system, reported Reuters.
The overnight rate would be cut to 2.75% from 4.5% and the seven-day rate to 3.25% from 5.5%, effective Friday, the People’s Bank of China (PBOC) said in its official microblog.
With Chinese banks facing an uptick in troubled loans, the central bank decided to lower borrowing costs for businesses in the hope this will boost the economy.
“There is no doubt that the central bank’s move is aimed at lowering the cost of bank liquidity,” Xue Hexiang, a strategist at Huatai Securities told Reuters.
The cut to the SLF is a sign that more policy easing is ahead, Li Huiyong, an economist at Shenyin & Wanguo Securities told Reuters. He expects the PBOC to cut benchmark interest rates by 25 to 50 basis points in 12 months and also to cut bank reserve requirement ratios.
On Oct. 23, the PBOC cut interest rates for the sixth time over the past 12 months, and lowered the amount of cash that banks must hold as reserves in a bid to jump start growth in its stuttering economy.
The central bank said on its site that the cut to SLF rates would help develop a market-based “interest rate formation mechanism” by “facilitating the role of SLF interest rates in forming the ceiling of an interest rate corridor.”
At the end of October, outstanding SLF stood at zero, according to data, with no activity for several months. SLF rates were cut in March, sources with direct knowledge of the matter told Reuters.
When it cut benchmark rates in October, the PBOC lifted the caps on bank deposit rates to liberalize interest rates, but it said it would continue to publish benchmark market rates while trying to develop a set of market-based interest rates.