China’s central bank reduced the cost of one-year funds to banks for the first time since 2016, calming markets nervous about tightening liquidity amid a slowing economy, reported Bloomberg.
The People’s Bank of China (PBOC) lent CNY 400 billion ($57 billion) with its medium-term lending facility and lowered the interest rate on the loans to 3.25 per cent from 3.3 per cent. The injection replaced CNY 403.5 billion of loans that mature.
The reduction does not represent a direct cut in borrowing costs to the economy and reflects the bank’s cautious approach to stimulus amid concern about rising debt and inflation. However, concern about that cautious stance prompted traders to sell Chinese bonds last month.
China’s 10-year government bond yield declined two basis points to 3.28 per cent, erasing an earlier gain.
Authorities refrained from adding cash via open-market operations or with a targeted monetary tool last week, resulting in net liquidity drainage of CNY 590 billion yuan—the most since February 2019.