China Cuts Short-Term Policy Interest Rate for First Time in a Year... Accelerating Liquidity Supply

1-Year MLF Adjusted from 2.5% to 2.3%... 38 Trillion Won Supplied

The People's Bank of China is accelerating liquidity supply by lowering short-term policy rates following the 'de facto benchmark interest rate.' This move is interpreted as an effort to actively inject money to stimulate demand amid concerns over economic slowdown and sluggish domestic consumption recovery.

On the 25th, the People's Bank of China announced that it set the one-year Medium-term Lending Facility (MLF) rate, which supplies 200 billion yuan (approximately 38 trillion won) to some commercial financial institutions, at 2.3%. MLF loans are liquidity adjustment tools through which the People's Bank of China lends funds to commercial banks. The one-year MLF rate had been frozen since it was cut by 0.15 percentage points to 2.5% in August last year.

[Image source=Yonhap News]

On the same day, the People's Bank also decided to inject 235.1 billion yuan (approximately 45 trillion won) into the market through a 7-day reverse repurchase agreement (reverse repo) with a borrowing rate of 1.7%. Earlier, on the 22nd, the loan prime rate (LPR), which is effectively the benchmark interest rate, was lowered by 0.1 percentage points for both the one-year and five-year terms.

In line with the previous benchmark rate cut, China's five major state-owned commercial banks lowered their yuan deposit rates for the first time this year. According to local media such as China Central Television (CCTV), the five major banks?Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, and Bank of Communications?reduced the annual interest rate on demand deposits from 0.2% to 0.15% on the day.

The fixed deposit rates for three-month, six-month, and one-year terms were each cut by 0.1 percentage points to 1.05%, 1.25%, and 1.35%, respectively, while the two-year, three-year, and five-year fixed deposit rates were lowered by 0.2 percentage points to 1.45%, 1.75%, and 1.8%, respectively. CCTV reported that banks are expected to lower loan interest rates in the future as well.

This content was produced with the assistance of AI translation services.