<중앙은행, 단기금리 인하…뚜렷해진 통화 완화 기조> Central Bank Lowers Short-Term Interest Rates... Clearer Monetary Easing Stance

Movement at Inha after 10 Months
Signs of MLF Rate Cut Expected Next Month

The People's Bank of China, the country's central bank, lowered its short-term policy interest rate for the first time since August, signaling a clear easing monetary stance.

On the 13th, the People's Bank announced a 0.01 percentage point cut in the 7-day repurchase agreement (reverse repo) rate from 2.00% to 1.90%. This is the first reverse repo rate cut in 10 months since August last year (0.01 percentage point). The liquidity supplied to the market through open market operations on this day amounted to 2 billion yuan (approximately 350 billion KRW).

This rate cut came after a series of calls for policy easing both domestically and internationally, following the release of weak economic indicators such as a trade deficit and inflation below expectations.

Major investment banks including CITIC Securities had previously anticipated that China would cut policy rates to strengthen recovery after the spread of the COVID-19 virus, diagnosing that the economy has entered a stabilization phase. Ding Shuang, Chief Economist for Greater China at Standard Chartered Bank, said, "This is a clear signal of easing," and forecasted a subsequent cut in the loan prime rate. He also expected that the government might consider other policy measures such as lowering the reserve requirement ratio for commercial banks, easing real estate policies, and expanding fiscal spending.

The People's Bank of China is scheduled to announce the May bank lending results later this week, and the National Bureau of Statistics will release data on industrial production, investment, retail sales, and unemployment rates on the 15th.

There are also expectations that this rate cut could be a precursor to a cut in the Medium-term Lending Facility (MLF) rate. The Hong Kong South China Morning Post (SCMP) forecasted, "The 200 billion yuan worth of MLF will mature on the 15th, making it the next channel through which China will provide economic support." The one-year MLF rate has been maintained at 2.75% since mid-August.

Earlier, Yi Gang, Governor of the People's Bank of China, mentioned during a visit to Shanghai last week that the consumer price index (CPI) inflation rate is expected to rise from 0.2% in May to 1% by the end of the year. Governor Yi emphasized, "China has strong economic resilience, great potential, and sufficient policy space," and added, "We must have confidence and patience in China's steady economic growth."

Capital Economics stated, "The People's Bank of China’s first cut in short-term policy rates since last summer reveals growing concerns among policymakers about China's economic recovery," and predicted, "It is highly likely that the easing stance will continue through other tools of the People's Bank." They further observed, "A sharp acceleration in credit growth remains unlikely, and the recovery will mainly rely on the service sector."