China cuts key interest rate for first time in 10 months as economic recovery cools

China’s central bank cut its key medium-term lending rates on Thursday, in a long-awaited move as the economy’s post-Covid recovery continues to lose momentum.

The People’s Bank of China cut the interest rate on 237 billion Chinese yuan ($33 billion) of one-year medium-term lending facilities (MLF) to some financial institutions by 10 basis points – from 2.75% to 2.65%.

The central bank last cut the interest rate on 400 billion yuan of one-year MLF loans in August, making Thursday’s move the first such cut in 10 months.

China’s medium-term lending facility is a funding channel introduced to allow the central bank to inject liquidity into the banking system and influence interest rates on certain loans.

Earlier this week, the central bank cut its seven-day reverse repo rate by 10 basis points from 2% to 1.9%, injecting 2 billion Chinese yuan through its seven-day repos. China’s largest state-owned commercial banks cut deposit rates last week, according to CNBC checks.

Shortly after the announcement, the dollar rose 0.2% against the onshore Chinese yuan to 7.1744 – its lowest level since November.

The Shanghai Composite was 0.3% higher while the Shenzhen component was flat. Hong Kong’s Hang Seng index rose 1.3% and the Hang Seng Tech index jumped more than 2%.

The central bank’s MLF cuts are a sign of Chinese policymakers’ “willingness” to step in to help prop up the economy, KraneShares chief investment officer Brendan Ahern said.

“They are signaling their awareness and willingness to support the economy, that’s it [a] recognition that post-Covid recovery is taking place at a very tepid or gradual pace,” Ahern told CNBC’s “Street Signs Asia.”

He added that the decision on the prime rate loan, which is scheduled for June 20, is also expected to make a cut as the government embarks on further support measures to boost demand.