China cuts rates for first time in two years
European stocks buoyed by surprise PBoC liquidity injection
The People’s Bank of China (PBoC) announced on Monday that it has lowered the interest rate on 700 billion yuan worth of one-year medium-term lending facility loans to a number of financial institutions by 10 basis points. The interest rate on the MLF loans now stands at 2.85%.
The central bank also lowered the borrowing costs of seven-day reverse repurchase agreements from 2.20% to 2.10%.
As the first rate cut by the central bank since April 2020, the news came as a surprise to market analysts. Out of 48 traders and analysts polled by Reuters last week, 34 predicted that there would be no change to MLF rates.
With around 500 billion yuan worth of MLF loans maturing on Monday, the PBoC’s operation resulted in a net 200 billion yuan of new fund injections into the banking system.
Monday also saw the National Bureau of Statistics announce that China’s gross domestic product (GDP) grew by 4% in the fourth quarter of 2021 from a year earlier.
For the entirety of 2021, the official statistics body stated that the Chinese economy grew by 8.1%, beating analyst forecasts of just over 6%.
Asian markets focussed on the fourth quarter figures, however. Japan’s Nikkei 225 closed down by 0.5%, while Korea’s KOSPI index slipped by 1%. Although the Shanghai Composite Index traded 0.5% higher, Hong Kong’s Hang Seng index closed down by 0.6%.
European markets instead focussed on the PBoC’s unexpected liquidity injection. By 14:50 (GMT), the pan-European Euro Stoxx 50 and 600 both traded 0.6% higher.