In order to offset the impact of the peak period for tax payments and to keep the liquidity of the Chinese banking system adequate at a reasonable level, the People’s Bank of China (PBOC) announced on August 15 its decision to conduct reverse repo operations in the amount of RMB 204 billion ($28.4 billion) and medium-term lending facility (MLF) operations in the amount of RMB 401 billion ($55.8 billion), aiming to fully meet the needs of financial institutions. At the same time, MLF rates have been cut by 15 basis points to 2.5 percent, while the seven-day reverse repo operation rate has been cut by 10 basis points to 1.8 percent.
The announcement of the People’s Bank of China (PBOC) to cut key policy rates for the second time in three months on August 15 indicates that the Chinese authorities are implementing monetary easing efforts to boost the economic development.
Market analysts have stated that the move to decrease key policy rates today may lead to a potential cut in China’s lending benchmark loan prime rate (LPR) in the near future.
On August 9, China’s National Bureau of Statistics (NBS) announced China’s had CPI decreased by 0.3 percent in July, increasing concerns about rising deflation risks, with economic experts calling for more monetary easing measures to alleviate the slowdown. Also, another major Chinese housing developer Country Garden is reported to be facing default risks, also negatively affecting confidence in the financial markets.
After the announcement of the policy rate cuts, steel and raw material futures prices have posted some increases on August 15, though they have been very limited, given the still negative fundamentals in the market and the only small 0.34 percent decline in crude steel output in China in July. Rebar and HRC futures prices at the Shanghai Futures Exchange have risen by one percent and 0.6 percent respectively today. Iron ore futures at Singapore Exchange have edged up by 0.61 percent to $101.05/mt on the same day.