Coronavirus: China cuts MLF borrowing costs to record low, stepping up pandemic battle

People’s Bank of China lowered the interest rate on its one-year medium-term lending facility (MLF) loans to financial institutions to 2.95 per cent

The move came on the same day the first phase of a targeted reserve requirement ratio (RRR) cut came into effect

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The move should pave the way for a similar reduction to the country’s benchmark loan prime rate (LPR), which will be announced on Monday, to lower financing costs for companies hit by the pandemic. Photo: Reuters

Published: 12:27pm, 15 Apr 2020Updated: 12:27pm, 15 Apr 2020

China’s central bank on Wednesday cut the interest rate on its medium-term funding for financial institutions to the lowest on record, as policymakers stepped up their efforts to combat the economic fallout from the coronavirus health crisis.

The move should pave the way for a similar reduction to the country’s benchmark loan prime rate (LPR), which will be announced on Monday, to lower financing costs for companies hit by the pandemic.

The People’s Bank of China (PBOC) said it was lowering the one-year medium-term lending facility (MLF) loans to financial institutions to 2.95 per cent, the lowest since the liquidity tool was introduced in September 2014, down 20 basis points from 3.15 per cent previously.

In a statement, the central bank said that it was injecting 100 billion yuan (US$14.19 billion) through the liquidity tool.

The one-year MLF is still close to 3 per cent, the highest among all major economies, which offers the PBOC space for further easing if things get worse

Yun Xiong

The cut was largely in line with market expectations, as economists believe the central bank would flatten the yield curve by lowering the MLF rate by the same margin as the cut to the 7-day reverse repo rate in late March.