A Cut By Any Other Name

The State Council announced steps to introduce more market influence into China’s lending rates on Friday night. This is a de facto interest rate cut to guide banks’ lending rates lower under the guise of interest rate reform. The move is also an incremental reform step where the PBOC is essentially using the MLF rate to replace the existing benchmark lending rate. To fundamentally address transmission problems and reduce funding costs for the real economy, additional reforms to deposit rates are necessary.

Posted August 21, 2019
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