China's Central Bank Unexpectedly Slashes Rates To Bolster Struggling Economy

China’s central bank  People’s Bank of China (PBOC) has unexpectedly slashed important policy rates for the second time in three months.

According to Reuters, the PBOC made this decision to support the nation’s struggling economic recovery. The move paves the way for a potential cut in China’s lending benchmark loan prime rate (LPR) in the coming week.

Market watchers noted that the falling credit growth and increasing deflation risks last month needed more monetary easing measures to halt the slowdown. The PBOC responded by lowering the rate on 401 billion yuan ($55.25 billion) worth of one-year medium-term lending facility (MLF) loans to some financial institutions.

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The surprising rate cut is being seen as a response to support subdued credit data and China’s recovery, which might intensify yuan depreciation pressure. The MLF rate serves as a guide to the LPR, and markets often use it as an indicator for any lending benchmarks changes.

Unlike some other global central banks, China has loosened its monetary policy to boost a stalling recovery while others tighten their grip to fight high inflation. This decision has further widened the yield gap with major economies like the U.S.

Meanwhile, economist Mohamed A. El-Erian took to X, formerly known as Twitter, to express his stance on the weakening economy. El-Erian pointed out that China’s economy is showing weaker growth than anticipated, as industrial production and retail sales missed expectations, along with a consensus forecast miss in fixed investment, while youth unemployment figures are yet to be released by the authorities.

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