China reduced its medium-term lending facility rate by 5 basis points – the first such rate cut since 2016 as economic growth slows to a near 30-year low.
The People’s Bank of China (PBoC) cut the one-year rate on its medium-term lending facility (MLF) on Tuesday to reach 3.25 percent, the first reduction since February 2016. The central bank also dished out 400 billion yuan in new MLF loans, effectively rolling over the 403.5 billion yuan (US$57.3 billion) in loans expiring on the same day.
The one-year MLF rate acts as a guide for the PBoC’s loan primate rate (LPR), which is the benchmark for the best rate that 18 selected banks can charge borrowers. The LPR then serves as a reference point for most other lending rates in China.
In the past two months, the LPR has dropped 11 basis points and the recent MLF cut is expected to push the prime rate lower. Concurrently, Chinese growth is registering a near 30-year low at 6 percent – the floor of the government’s 2019 target range – and is expected to further slow due to ongoing external and internal headwinds.
