Chinese Central Bank Cuts Rates for Medium-term Lending Facilities 20 Basis Points, Launches Targeted RRR Reduction


The People’s Bank of China (PBOC) has just reduced the rate for one of the key instruments it uses for open-market operations.

On 15 April PBOC injected 100 billion yuan via one-year medium-term lending (MLF) facilities at a rate of 2.95%, for a reduction of 20 basis points compared to the last MLF sale at 3.15%.

Domestic analysts say that the reduction will lead to a corresponding decline in China’s benchmark loan prime rate (LPR) scheduled for its next release on 20 April.

“Given the LPR pricing mechanisms and prior changes, we expect the 20 April one-year LPR price to see a 20 basis point fall consistent with the MLF decline,” said Wen Bin (温彬), chief researcher with China Minsheng Bank.

“At the same time, in order to maintain the stability and continuity of property market control policies, the five year LPR rate will fall 10 basis points to 4.65%.”

The reduction in the MLF rate coincided with the launch of a 0.5 percentage point targeted cut to the required reserve ratio (RRR) for a group of smaller banks including rural financial institutions and municipal lenders operating t the provincial level.

The 15 April RRR cut is one of two targeted cuts of equal size, the second of which is scheduled for 15 May.

PBOC has been trimming rates for its open market instruments since the start of 2020, as part of efforts to shore up liquidity following the COVID-19 outbreak.

On Mon­day 17 Feb­ru­ary the Peo­ple’s Bank of China (PBOC) injected 200 bil­lion yuan (ap­prox. USD$28.65 bil­lion) via one-year MLF’s, and reduced the rate by 10 basis points to 3.15%. 

At the start of Feb­ru­ary PBOC also cut the 7-day re­verse repo rate to 2.4% from 2.5%, and the 14-day re­verse repo rate to 2.55% from 2.65%, for a 10% trim across the board.  

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