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PBOC cuts medium-term interest rate ahead of GDP figures

PBOC cuts medium term interest rate ahead of GDP figures

The People’s Bank of China continued its efforts to stimulate the economy following, as the world’s second-biggest economy brace for its first quarterly contraction in more than 30 years on the back of the coronavirus shock.

The PBOC announced on Wednesday a slash in the one-year medium-term lending facility (MLF) loans to financial institutions to 2.95 percent, the lowest since September 2014, down from 3.15 percent.

The central bank pumped 100 billion yuan via the liquidity tool, noting that a 50-basis points reduction to banks’ reserve ratio also kicked off on Wednesday, releasing about 200 billion yuan of funding.

The announced cut in MLF could be a preparation for a similar reduction in the loan prime rate (LPR), which will be announced on April 20, as the PBOC aims to slash financing costs for companies affected by the Covid-19 outbreak.

On Friday, markets will carefully watch China’s first quarter GDP data that may show a 6.5 percent contraction from a year earlier, which may push 2020 growth to 2.5 percent from 6.1 percent in 2019.

Despite the MLF cut, China’s CSI 300 index finished 0.74 percent down at 3,797.36, as coronavirus worries hit investors’ sentiment.

The onshore yuan was 0.26 percent down versus the U.S. dollar at 7.0636, and the offshore yuan traded 0.29 percent down at 7.0655.

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