Breaking News! China Further Cuts Interest Rates to Ensure Ample Liquidity, New Loans, M2 and Informal Financing Fell across the Board

After lowering the seven-day reverse repurchase rate at 9:20 a.m. by 10 basis points, the Standing Lending Facility (SLF) interest rate was also lowered at 8 p.m. on the same day by 10 basis points. On June 15, the People's Bank of China (PBOC) conducted a one-year MLF operation of 237 billion yuan, with an interest rate of 2.65%, down from previous 2.75%. Today, 200 billion yuan of MLF expires.

The PBOC announced on June 15, 2023 that in order to maintain reasonable and sufficient liquidity in the banking system, it conducted a 237 billion yuan medium-term lending facility (MLF) operation and a 2 billion yuan reverse repurchase through open market operation. The rate of MLF was 2.65%, down 10 basis points.

Industry experts believe that the coordinated reduction of policy interest rates has released a clear signal of the aim to stablise growth, which reflects counter-cyclical adjustments in monetary policy and aims to further strengthen support for the real economy.

Ming Ming, chief economist of CITIC Securities, said that lowering the MLF interest rate can promote a faster decline in incremental borrowing rate (IBR), and at the same time release a stronger signal of stabilising the growth, thus providing strong support for economic recovery.

Analysts previously pointed out that the interest rate system may fall going forward. The MLF interest rate was lowered on June 15, and the LPR is expected to be lowered on June 20.

In addition, according to financial data released by the PBOC on June 13, the year-on-year growth rates of credit, M2, and informal financing fell across the board. The growth rates of M2 and informal financing were already lower than those in December last year.

New yuan loans in May were 1.36 trillion yuan, 541.8 billion yuan lower year-on-year. New informal financing in May was 1.56 trillion yuan, 1.31 trillion yuan lower year-on-year. The year-on-year growth rate of informal financing dropped from 10.0% in April to 9.5% in May, and the growth rate of M2 dropped from 12.4% in April to 11.6% in May. The growth rate of credit balance is only 0.3 percentage point higher than that in December last year.

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