China lowers funding costs with shift to overnight policy rate
SHANGHAI: China’s central bank injected cash into the banking system on Monday, as it formally shifted its main policy rate to an overnight lending rate, a move analysts said would ease funding costs and support the economy.
The People's Bank of China has introduced a new policy, shifting its main interest rate to the overnight lending rate, which will lower funding costs and support the economy. The bank injected 541 billion yuan into the banking system through overnight reverse repurchase agreements at a rate of 1.25 per cent. This change effectively reduces the floor of China's interest-rate framework by 15 basis points, decreasing borrowing costs for financial institutions.
While not a traditional rate cut, this move will help lower yields across the bond curve, steering short-term interest rates downward. The monetary policy stance is now aiming to decrease short-term interest rates, providing a "red packet" for financial institutions and boosting their net interest margins by about 5 basis points.
This measure is intended to stabilize profitability in the financial sector and enhance its ability to absorb risks, although it is unlikely to have a significant impact on the stock market.
Written by urgent.news from New Straits Times's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
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