China cuts a key interest rate and withdraws some liquidity from the banking system

Shanghai / (Archyde.com)
China’s central bank unexpectedly cut a key interest rate for the second time this year and pulled some liquidity from the banking system on Monday, in a bid to revive demand for credit to support the economy hit by the coronavirus.
Economists and analysts said they believe the Chinese authorities are keen to shore up the stagnant economy by allowing political divergence to widen with other major economies that are aggressively raising interest rates.
The People’s Bank of China (the central bank) said it decided to cut the interest rate on medium-term lending facilities of 400 billion yuan ($59.33 billion) for one year to some financial institutions by 10 basis points to 2.75 percent from 2.85 percent.
New bank lending in China fell more-than-expected in July, while credit growth broadly slowed, as a new outbreak of Covid, fears about jobs and a deepening property crisis worried businesses and consumers could take on more debt.
The People’s Bank of China attributed its move to “reasonably maintaining sufficient liquidity in the banking system”.
With 600 billion yuan of Multilateral Fund loans maturing, the operation resulted in a net withdrawal of 200 billion yuan of funds.
The People’s Bank of China reiterated that it will strengthen the implementation of its prudent monetary policy and maintain reasonably adequate levels of liquidity, while closely monitoring changes in domestic and external inflation, the bank said in its second quarter monetary policy report.
(dollar = 6.7425 Chinese yuan)