A coin and a banknote of China's yuan are seen in this illustration picture taken February 24, 2022. REUTERS/Florence Lo/Illustrationthe interest rate on the seven-day reverse bond repurchase agreement to 1.9% from 2% on Tuesday, a widely expected move given stubborn pockets of softness in its post-pandemic recovery. The revival of the critical real estate sector looks to have stalled: home prices fell slightly month-on-month in May after a four-month spurt, as sales volumes slumped.
In that context, cutting short-term borrowing costs to improve liquidity in the interbank market is the very least Beijing can do. It does suggest policymakers see credit demand weakening further, and the move will help domestic companies roll over debt. There will also likely be comparable cuts to medium-term rates coming up next.
But as the small size of the latest cut suggests, this is not going to rally private sector investment or consumption much on its own. Commodities traders did take heart,on the news, but domestic equity indexes opened flat while the yuan continued weakening apace. For companies hoping for a major move to boost demand – and central bankers elsewhere who fear the inflation this might export to their own economies – this highlights Beijing’s reluctance to do anything of the sort.
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Source: Reuters - 🏆 2. / 97 Read more »