China c.bank aims to significantly lower real interest rates through reforms

China’s central bank said on Saturday it will aim to significantly lower real interest rates through reforms.

The People’s Bank of China (PBOC) said the weighted average lending rate fell 4 basis points in the third quarter to 5.62 percent.

It also said that it would strengthen counter-cyclical adjustments in light of the rising downward pressure on the economy.

PBOC also said it will maintain prudent monetary policy to prevent inflation from spreading.

China’s consumer inflation has quickened to a near eight-year high of 3.8 percent, driven in part by soaring pork prices as a result of an outbreak of African Swine Fever in the country, posing a dilemma for the central bank.

The country’s economic growth for the third quarter fell to its slowest pace in nearly three decades, under pressure from slowing global demand and the ongoing trade war between China and the United States.

The bank “is increasingly concerned about rising CPI inflation and inflation expectations,” economists at Nomura said in a note on Friday, saying those risks may incline policymakers to lower profile easing measures in the near term.

Despite the higher inflation rates the central bank is expected to lower the LPR next Wednesday, for the third time since it was introduced in August.

The introduction of the LPR – a lending benchmark for new bank loans to households and businesses – is part of a broader packet of reforms the central bank is exploring to reduce corporate borrowing costs in the world’s second-largest economy.

The bank unexpectedly on Thursday extended 200 billion yuan ($28.60 billion) through its medium-term lending facility on Friday, the second time it has done so this month, while keeping the lending rate unchanged.

The move to add long-term funds caught the market off guard as the central bank had already injected funds last week.

Source: Reuters & CNBC