The PBOC’s decision to cut the 1-year interest rate on its medium-term lending facility (MLF) earlier today is unusual for two reasons. First, the 20bp reduction is double the size of the PBOC’s usual adjustments – the last time it cut the MLF rate by more than 10bp was in April 2020, during the midst of the initial COVID downturn. Second, the PBOC normally adjusts MLF rates on the 15th of each month. So the PBOC made a conscious decision not to wait until the middle of August to carry out the latest cut. The move comes on the back of Monday’s surprise 10bp cuts to the PBOC’s 7-day reverse repo rate and to the 1-year and 5-year Loan Prime Rate (LPR).
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