China reduces 1-year policy rate by record amount in stimulus drive

China’s Central Bank slashed the interest rate on its one-year policy loans by the most on record, beginning a sweeping program aimed at reviving confidence in the world’s second-largest economy, according to a report by Bloomberg. The People’s Bank of China cut the rate of the medium-term lending facility to 2% from 2.3%, according to a statement on Wednesday. The cut was the largest since the People’s Bank of China started using the monetary tool to guide market interest rates in 2016.The expected move follows Governor Pan Gongsheng’s announcement yesterday of a comprehensive stimulus package that is nothing short of an adrenaline shot for an economy at the very edge of a deflationary spiral. “The cut is part of the package,” said Bruce Pang, chief economist for Greater China at Jones Lang LaSalle Inc. “The market is keeping a close eye on the strength, frequency and synergy of measures to follow as China strives to achieve this year’s around 5% growth goal.” The yuan jumped above 7 per dollar for the first time in 16 months as investors digested China’s stimulus package. Chinese equities continued advancing, with the onshore benchmark CSI 300 Index on track to recover all of its losses for 2024. The yield on China’s 10-year bonds fell one basis point to 2.05%. The cut to the MLF rate is a precursor to more significant steps such as a promised rate cut on seven-day reverse repurchase notes, which the PBOC increasingly favors as its main policy lever. The rate on those instruments will be trimmed by 20 basis points to 1.5% soon.