China Provides Liquidity Supply Worth 111 Trillion Won Amid Economic Downturn Concerns

Short-term Policy Interest Rate Cut... First in Two Months Since June
Strategy Interpreted as Effort to Sustain Economic Recovery Momentum

Amid ongoing concerns about the slowdown in China's economy, the People's Bank of China took surprise action by cutting short-term policy interest rates to inject liquidity.

On the 15th, the People's Bank of China announced it would lower the 7-day reverse repurchase agreement (reverse repo) rate, a short-term policy rate, to 1.8%, and the 1-year Medium-term Lending Facility (MLF) rate to 2.5%, down 0.1 percentage points and 0.15 percentage points respectively.

As a result, the total liquidity injected into the market is expected to reach 605 billion yuan (approximately 111 trillion won).

This is the first time since June that the People's Bank of China has cut short-term policy rates. On June 7, China lowered the 7-day reverse repo rate from 2.0% to 1.9% for the first time in 10 months, and cut the 1-year MLF rate by 0.1 percentage points to 2.65%.

Bloomberg reported that with this rate cut, China's short-term policy rates and MLF rates have fallen to their lowest levels since 2020. MLF loans are a liquidity adjustment tool where the central bank lends funds to commercial banks, and the MLF rate is also considered a benchmark for the base interest rate.

In the afternoon, the People's Bank of China also unexpectedly cut the Short-term Liquidity Facility (SLF) lending rates, which provide short-term funds to commercial banks. Accordingly, the SLF 1-day rate was lowered by 0.1 percentage points to 2.65%, the 7-day rate to 2.8%, and the 1-month rate to 3.15%.

This move is interpreted as a strategy to sustain the spark of economic recovery by expanding liquidity amid a more severe-than-expected slowdown in China's economy.