China Cuts Rates to Boost Economic Growth

China surprised markets by cutting major short and long-term interest rates, its first such broad move since August last year, signaling intent to boost growth in the world's second-largest economy just days after a Communist Party leadership meeting.

The cuts to the central bank's key short-term policy rate, its market operations rates and benchmark bank lending rates came after China reported weaker-than-expected second-quarter economic data last week and its top leaders met for a plenum that occurs roughly every five years.

The country is verging on deflation and faces a prolonged property crisis, surging debt and weak consumer and business sentiment. Trade tensions are also flaring, as global leaders grow increasingly wary of China's export dominance.

The People's Bank of China (PBOC) said it would cut the seven-day reverse repo rate to 1.7% from 1.8%, and would also improve the mechanism of open market operations. That is the first cut to the rate since August 2023.

Minutes later, China cut benchmark lending rates by the same margin at the monthly fixing. The one-year loan prime rate (LPR) was lowered to 3.35% from 3.45% previously, while the five-year LPR was reduced to 3.85% from 3.95%.

The PBOC subsequently lowered the rates on its standing lending facility (SLF), a type of loan that it gives commercial banks to fulfill their temporary cash demands, by the same amount.

The "decisive" rate cut showed its determination to bolster the recovery and it was in response to the plenum's aims to achieve this year's growth target.

Following the rate cuts, China's yuan dropped to a near two-week low of 7.2750 per dollar, before paring some losses.

China's 30-year treasury futures for September 2024 delivery were up 0.33% in afternoon trade.