China Makes Rate Cut As Economy Sputters

China’s central bank made a surprise cut to one of its key lending rates in a bid to shore up sputtering growth in the world’s second largest economy, Laura He reported for CNN.

Photo Insert: The amount of lending affected is small, but the move is significant as it signals that the PBOC is likely to cut several other key interest rates later this month.

The cut to the 7-day reverse repo rate — the first since August last year — will boost liquidity in the banking system and make short term loans cheaper. The rate will drop to 1.9% from 2%, according to the People’s Bank of China (PBOC).

The amount of lending affected is small, but the move is significant as it signals that the PBOC is likely to cut several other key interest rates later this month, analysts say.

The rate cut reveals “growing concerns among policymakers” about the health of China’s recovery, Capital Economics analysts said.

It is likely to be followed by similar reductions to a medium-term lending rate, and the benchmark Loan Prime Rate (LPR) on Thursday and next Tuesday respectively, given that all three rates typically move in tandem, they added.

The last time China slashed its LPR was also in August last year.

“The rate cut came earlier and sharper than our and market expectations, highlighting the sense of urgency to alleviate economic momentum and business confidence,” said Becky Liu, head of China macro strategy for Standard Chartered Bank.

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