The People’s Bank of China (PBOC) reduced a key lending rate on Tuesday for the first time in 10 months in an effort to boost the country’s struggling post-pandemic economic recovery and restore market confidence.
The Chinese central bank lowered its seven-day reverse repo rate by 10 basis points to 1.90% from 2.00% on Tuesday, after it injected 2 billion yuan ($279.97 million) through the short-term bond instrument.
Analysts stated that the PBOC’s decision did not come as a complete surprise to the market, given that recent economic data has indicated a decline in investor sentiment and a tepid demand climate.
According to Ken Cheung, chief Asian FX analyst at Mizuho Bank, “commercial banks have already lowered deposit rates, and PBOC governor Yi Gang also mentioned strengthening counter-cyclical adjustment recently.”
He expected the central bank to mitigate the impact of future policy easing on the Chinese yuan ahead of the Federal Reserve’s policy meeting this week, since an interest rate cut in China may further widen the yield gap with the US, even if the Fed pauses this month.