PBoC cuts medium-term rate to support economy amid virus crisis

February 17, 2020 12:03
China's central bank is taking measures to reduce the economic impact of the coronavirus outbreak. Photo: Reuters

The People's Bank of China (PBoC) on Monday cut the interest rate on its medium-term lending in an apparent bid to support economic activities that have been severly disrupted by the coronavirus outbreak.

The central bank announced that it is lowering the rate on 200 billion yuan (US$28.65 billion) worth of one-year medium-term lending facility (MLF) loans to financial institutions by 10 basis points (bps) to 3.15 percent, Reuters reports.

The PBoC attributed the move to keep banking system liquidity “reasonably ample” to counter factors including maturing reverse repos. 

The move is expected to pave the way for a reduction in the country’s benchmark loan prime rate (LPR), which will be announced on Thursday, to lower borrowing costs and ease financial strains on companies hit by the virus epidemic, Reuters noted.

Earlier this month, the PBoC unexpectedly lowered the interest rates on reverse repurchase agreements by 10 basis points as the virus outbreak escalated.

Cutting the MLF rate following a similar move in the reverse repo rate would help the reduction in rates to feed through to longer-term lending, the report cited traders and analysts as saying.

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