China has surprised markets around the world by cutting several key interest rates amid growing signs that the economy is slowing in the nation of 1.4 billion people.
China reduced several short and log-term interest rates in its first major monetary policy action since August 2023.
The move comes days after a Communist Party leadership meeting ended with a vow to stimulate the country’s slumping economy after data showed weaker-than-expected second-quarter gross domestic product (GDP).
Economists say that China’s economy is on the verge of deflation and faces a prolonged property crisis, surging debt levels, and weak consumer and business sentiment.
As a result, the People's Bank of China (PBOC) cut the seven-day reverse repo rate to 1.7% from 1.8% and said it would improve the mechanism of open market operations.
The central bank also lowered its benchmark lending rates by 0.10 percentage points.
The country’s one-year loan prime rate (LPR) was reduced to 3.35% from 3.45%, while the five-year LPR was lowered to 3.85% from 3.95%.
The PBOC also lowered the rates on its standing lending facility (SLF), a type of loan that it gives commercial banks to fulfill their cash demands, by the same amount.
After the rate cuts were announced, China's currency dropped to a near two-week low of 7.2750 per dollar, before paring some of its losses.
Chinese sovereign bond yields fell across the curve, with the 10-year and 30-year down as much as three basis points before stabilizing at 2.24% and 2.45%.
