SHANGHAI: China surprised markets by lowering a key short-term policy rate and its benchmark lending rates on Monday, in efforts to boost growth in the world’s second-largest economy.
The cuts come after China last week reported weaker-than-expected second-quarter economic data and its top leaders met for a plenum that occurs roughly every five years.
The country is verging on deflation and faces a prolonged property crisis, surging debt and weak consumer and business sentiment. Trade tensions are also flaring, as global leaders grow increasingly wary of China’s export dominance.
The People’s Bank of China (PBOC) said on Monday it would cut the seven-day reverse repo rate to 1.7% from 1.8%, and would also improve the mechanism of open market operations.
Minutes later, China cut benchmark lending rates by the same margin at the monthly fixing. The one-year loan prime rate (LPR) was lowered to 3.35% from 3.45% previously, while the five-year LPR was reduced to 3.85% from 3.95%.
“The cut today is an unexpected move, likely due to the sharp slowdown in growth momentum in the second quarter as well as the call for ‘achieving this year’s growth target’ by the third plenum,” said Larry Hu, chief China economist at Macquarie.
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