China cuts major interest rates to support economy
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The news: China has surprised markets by cutting major short and long-term interest rates for the first time since August last year, as it looks to boost growth in the world's second-largest economy.
The numbers: The People's Bank of China (PBOC) on Monday cut the seven-day reverse repo rate to 1.7% from 1.8%, and said it would also improve the mechanism of open market operations.
It also cut benchmark lending rates by the same margin. 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 central bank also lowered the rates on its standing lending facility (SLF), a type of loan that it gives commercial banks to fulfil their temporary cash demands, by the same amount.
The context: The cuts to the central bank's key rates came after China reported weaker-than-expected second-quarter economic data last week 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 official Xinhua news agency cited PBOC sources as saying the "decisive" rate cut showed its determination to bolster the recovery and it was in response to the plenum's aims to achieve this year's growth target.
Some analysts said that growing expectations for the US Federal Reserve to start cutting interest rates also gave the PBOC room to ease its policy, given the pressure the yuan has been under because of a wide yield gap with the dollar.
