Economic Watch: China’s central bank cuts 7-day reverse repo rate

BEIJING, June 13 (Xinhua) — China’s central bank lowered its seven-day reverse repo rate from 2 percent to 1.9 percent on Tuesday amid its efforts to step up counter-cyclical adjustment and shore up market expectations.

The People’s Bank of China (PBOC) said that it conducted 2 billion yuan (about 279.73 million U.S. dollars) of seven-day reverse repos at an interest rate of 1.9 percent the same day.

The move is aimed at keeping liquidity reasonable and ample in the banking system, according to the central bank.

A reverse repo is a process in which the central bank purchases securities from commercial banks through bidding, with an agreement to sell them back in the future.

This is PBOC’s first such move since August last year, which analysts believe is PBOC’s stance to reiterate its prudent monetary policy.

According to analysts, the moderate cut might be conducive to keeping prices stable, maintaining financial stability and supporting the real economy, and it signals the easing of the country’s key policy rates.

The move came amid the country’s recent efforts to effectively reduce the costs of liabilities of the banks, encourage the banks to support the real economy better and strengthen counter-cyclical adjustment, said Zhou Maohua, an analyst with the China Everbright Bank.

He believes there’s a slightly higher pressure for policy fine-tuning to ensure that the economic recovery is steadily on track, as key indicators since April reflected the weakness of the recovery, while the uncertainties in external demand remained high.

The move is also expected to promote the steady decline of the enterprises’ financing costs and individuals’ credit costs, and help create a prudent and neutral monetary and financial environment for economic recovery, said Bruce Pang, the Greater China chief economist of real estate and investment management services firm JLL.

The cut came ahead of the PBOC’s release of the medium-term lending facility rate and loan prime rate decisions.

Earlier this month, PBOC Governor Yi Gang said at a symposium during his inspection in Shanghai that the central bank will continue to precisely and effectively implement a prudent monetary policy while strengthening counter-cyclical adjustment, supporting the real economy, promoting employment and maintaining currency and financial stability.  ■

Source: Xinhua