China Cuts Short-Term Policy Rate Unexpectedly

The People's Bank of China unexpectedly lowered its short-term policy rate by 10 basis points and pumped more liquidity into the financial system on Monday.

The central bank cut the 14-day reverse repurchase interest rate to 1.85 percent from 1.95 percent. The bank injected CNY 74.5 billion via the policy tool.

The bank also conducted seven-day reverse repurchase operations of CNY 160.1 billion at an interest rate of 1.70 percent. The bank had previously reduced the seven-day reverse repo rate by 10 basis points in July.

Overall, today the PBoC added CNY 234.6 billion into the banking system. The apex bank said the operations will help to keep liquidity at a reasonable level in the system at the quarter-end.

The rate was reduced ahead of the National Day Holiday, which starts on October 1 and last for seven days.

Last week, the PBoC had left its loan prime rates unchanged despite the US Federal Reserve cutting the benchmark rate by a sharper-than-expected 50 basis points.

The central bank reduced the reverse repo rate today soon after officials announced that the PBoC Governor Pan Gongsheng and two other officials will hold a press conference on Tuesday.

Recent economic data suggested that the second-largest economy is struggling to achieve around 5 percent growth this year and more stimulus measures will be required to attain the ambitious target.

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