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The People's Bank of China reduced its short-term key policy rate for the first time in almost a year. Following the repo rate, the Chinese Central Bank reduced the benchmark lending rates (LPR) by the same amount in the monthly fix.
PBOC said on Monday that the 7-day reverse repo rate was reduced by 10 basis points to 1.7%. The one-year loan interest rate (LPR) has been reduced from 3.45% to 3.35%, while the five-year LPR has been reduced from 3.95% to 3.85%.
The cuts come after official data released last week showed economic growth slowed to its worst pace in five quarters in the April-June period.
"The PBOC did not wait for the Fed to cut. This likely reflects that they are aware of the downward pressure on the Chinese economy, so they need to act to address the challenge domestically," said Zhang Zhiwei, chief economist at Pinpoint Asset Management.
The seven-day interest rate is seen as the future benchmark policy rate as the PBOC has signaled a shift towards the short-term rate to guide markets in recent weeks. This will reduce the importance of the current one-year benchmark rate, known as the medium-term lending facility rate. PBOC last reduced the MLF rate and the seven-day interest rate by 10 basis points in August.
"PBOC has started to implement pro-growth policy, consistent with the message coming out of the plenum - authorities are determined to achieve the full-year GDP target and policies will be adjusted after disappointing Q2 GDP," said Ju Wang, Head of Greater China FX and Interest Rate Strategy at BNP Paribas.
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