China’s Surprise Rate Cuts Signals Shift to Short-Term Policy Rate Focus

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The People’s Bank of China

China’s central bank unexpectedly lowered a number of key interest rates Monday, marking the first full-range rate cut in nearly a year.

The People’s Bank of China (PBOC) cut the seven-day reverse repo rate, a key short-term policy rate, by 10 basis points to 1.70%. It also trimmed a clutch of interest rates known as the standing lending facilities (SLF) by 10 basis points. The overnight SLF rate was cut to 2.55%, and the seven-day and one-month rates were lowered to 2.79% and 3.05% respectively.

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The People’s Bank of China (PBOC) lowered key interest rates, including the seven-day reverse repo rate to 1.70% and SLF rates by 10 basis points.
The central bank's action follows weaker-than-expected second-quarter GDP growth of 4.7% and speculation about a potential Fed rate cut.
Banks lowered the one-year loan prime rate to 3.35% and the over-five-year LPR to 3.85%, indicating a focus on short-term policy rates.

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Who’s Who

Macquarie Group Ltd.: Macquarie Group Ltd. is cited in the article as providing analysis on China's central bank rate cuts. They suggest the cuts are due to weaker-than-expected second-quarter GDP data and potential Fed cuts in September. Macquarie also notes the PBOC aims to steepen the yield curve and that future policy moves may depend on the Fed's actions. Their analysis includes potential market impacts such as pressure on the yuan.

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What Happened When

Last August 2023：: After the worse-than-expected second-quarter GDP last year, the PBOC cut its policy rate.

Second quarter, 2024：: China's GDP grew 4.7% year-on-year, missing market expectations as weak consumption and a prolonged property market slump weighed on growth despite strong exports.

June 2024：: The central bank extended 2.55 billion yuan ($351 million) of SLF to financial institutions, including 2 billion yuan of overnight lending and 550 million yuan of seven-day loans.