China needs bigger rate cuts beyond latest small move to support economy, analysts say

The People’s Bank of China cut the medium-term lending facility rate by 5 basis points on Tuesday, the first reduction in more than three and a half years

The move could mark the beginning of a series of rate cuts to avert a further slowdown in the economy, analysts say

Reading Time:3 minutes

The PBOC cut the one-year rate on its medium-term lending facility (MLF) by 5 basis points to 3.25 per cent. Photo: Reuters

Published: 7:13pm, 5 Nov 2019Updated: 10:41pm, 5 Nov 2019

China’s central bank on Tuesday made a modest cut in the key medium-term lending facility rate for the first time since 2016, but analysts say more needs to be done to support the country's slowing economy.

Analysts said further rate cuts and liquidity injections from the People’s Bank of China (PBOC) were required in the near term to help support growth, but there is uncertainty on how far and fast bank officials will ease monetary conditions.

The PBOC cut the one-year rate on its medium-term lending facility (MLF), the rate at which it lends to banks at relatively low cost, by 5 basis points to 3.25 per cent, the first reduction since February 2016.

The cental bank doled out 400 billion yuan (US$56.9 billion) in new MLF loans Tuesday, essentially rolling over the 403.5 billion yuan (US$57.3 billion) in loans expiring the same day.

With economic activity likely to come under further pressure in the months ahead, we think more easing will be needed to prevent growth from slowing too sharply

Julian Evans-Pritchard

Julian Evans-Pritchard, a senior China economist of Capital Economics, said Tuesday’s move could mark the beginning of a series of PBOC rate cuts and another 70 basis points of reductions in the MLF rate may be needed by the middle of next year.