China Cuts Interest Rate On Medium Term Loans To Ease Virus Impact

China’s central bank cut the interest rate on medium Term loans on Monday to lessen the impact of the novel coronavirus, or Covid-19, outbreak on the economy.

The People’s Bank of China reduced the medium term lending facility, or MLF, by 10 basis points to 3.15 percent. On Monday, the bank offered CNY 200 billion worth of one-year loans to commercial lenders through this.

The central bank also pumped CNY 100 billion through the seven-day reverse repurchase agreements. Around CNY 1 trillion worth of reverse repos matured on Monday.

The rate on the seven-day reverse repos was cut to 2.40 percent from 2.50 percent in an unscheduled move on February 3 as investor confidence was hurt severely as the virus infections spread and death toll grew. The rate on the 14-day reverse repo was lowered to 2.55 percent from 2.65 percent. This rate was cut last in December, by five basis points.

The latest reduction is likely to be reflected in the loan prime rate, which is scheduled for review on February 20. In January, the benchmark lending rates were left unchanged for the second straight month. The one-year loan prime rate was retained at 4.15 percent and the five-year loan prime rate at 4.80 percent.

The rate was last reduced in November, which was the first cut since the new lending rate was introduced.

The loan prime rate is fixed monthly based on the submission of 18 banks, though Beijing has influence over the rate-setting. This new lending rate replaced the central bank’s traditional benchmark lending rate in August 2019.

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