Rate cuts, state funds for China’s trade-in scheme as Beijing moves ‘on a path to easing’

China cuts one-year medium-term lending facility and allocates 300 billion yuan (US$41.3 billion) in ultra-long-term treasury bonds on Thursday

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The recovery of China’s economy remains patchy, with its gross domestic product growth in the second quarter falling short of expectations. Photo: EPA-EFE

Published: 9:39am, 25 Jul 2024Updated: 5:59pm, 25 Jul 2024

After China’s central bank cut its fourth key rate this week on Thursday, analysts expect more policy easing amid a greater determination from Beijing to shore up the country’s economic activities.

The one-year medium-term lending facility (MLF) rate was unexpectedly lowered from 2.5 per cent to 2.3 per cent by the People’s Bank of China on Thursday, a signal interpreted by many as the start of a rate reduction cycle that could help China’s economy accomplish this year’s “around 5 per cent” economic growth target.

“I see [Thursday’s] move reflecting a clear signalling by the PBOC that monetary policy is still on a path to easing, which should help ease any investor concerns about M2 growth recently slowing to record low of 6.1 per cent year on year in June,” said Michael Chang, head of Asian financials at China Galaxy Securities International, referring to the aggregate value of liquid assets, including currency in circulation and private banking deposits.

The central bank said it had issued 200 billion yuan (US$27.5 billion) in one-year loans under its MLF on Thursday, while also injecting 235.1 billion yuan into the market through the seven-day reverse repo process.

The operation on Thursday followed 10 basis point cuts to two key benchmark lending rates cuts as well as the seven-day reverse repo rate by the central bank on Monday, just days after the conclusion of China’s third plenum, which had outlined major reforms.

After breaking the cycle of traditionally adjusting MLF rates on the 15th of each month, Julian Evans-Pritchard, head of China economics at Capital Economics, said the underwhelming market response to the third plenum and Monday’s rate cuts had pushed the central bank “to act with greater urgency”.