China’s central bank cuts key policy rate for first time in nearly a year

The MLF interest rate guides the nation’s loan prime rate, the benchmark lending rate to households and businesses.. The policy rate cut, which comes just days after the central bank trimmed two key short-term policy rates, suggests a future cut on the LPR that is set to be announced on June 20.

The PBOC also injected CNY20 billion of funds via seven-day reverse repurchase agreements at an interest rate of 1.90%. The bank said Tuesday that it cut the interest rate on seven-day reverse repurchase operations to 1.9% from 2.0% previously, its first cut in short-term lending rates since August. The central bank also said Tuesday that it injected CNY2 billion into the banking system at the new, lower rate.

The central bank said later Tuesday that it also cut rates on its standing lending facility, an emergency lending scheme for China’s commercial and policy banks, by a 10th of a percentage point, bringing the cost of overnight, seven-day and one-month to 2.75%, 2.90% and 3.25% respectively.

Those moves taken altogether suggest that China’s top leadership is increasingly concerned about the country’s sputtering recovery that has further cooled in May. Retail sales, a proxy for China’s consumption, rose 12.7% from a year earlier in May, down from an 18.4% increase in April, said the National Bureau of Statistics Thursday.

Industrial production rose 3.5% in May from a year earlier, down from April’s 5.6%, while fixed-asset investment increased 4.0% in the January-May period, slowing from the 4.7% increase in the first four months, official data show.

However, economists say rate cuts are barely enough to rescue the world’s second largest economy from downturn pressures and have been calling for greater policy support to boost the economy.

“To make the economic recovery sustainable, a significant boost from government policies seems necessary. ” says Zhiwei Zhang, president at Pinpoint Asset Management.