China’s Central Bank Lowers Borrowing Costs

SHANGHAI (Reuters) – China’s central bank announced on Friday a reduction in the borrowing cost of its seven-day reverse repurchase agreements, part of the largest stimulus package since the pandemic, aimed at bolstering the economy.

The People’s Bank of China (PBOC) stated that the rate would decrease by 20 basis points from 1.70% to 1.50%, effective immediately.

The PBOC emphasized that this rate cut aims to “further strengthen counter-cyclical adjustment of monetary policy and support stable growth of the economy”.

In addition to the seven-day reverse repos, borrowing costs for 14-day reverse repos, temporary repos, and other reverse repos will be adjusted by the same margin.

Frances Cheung, head of FX and rates strategy at OCBC Bank, noted that this 20-basis-point cut in the reverse repo rate and a concurrent 50 basis points cut in the reserve requirement ratio (RRR) are steps to implement previously announced policies.

Cheung remarked that the market may seek additional fiscal support to maintain a recovery in risk sentiment. The PBOC last reduced the borrowing cost of short-term liquidity tools by 10 basis points in July.