The People's Bank of China surprises the market with an unexpected interest rate cut

The People's Bank of China (PBC) surprised financial markets by announcing an unexpected ten basis points cut to its one-year loan prime rate (LPR), which will decrease from 3.45% to 3.35%. This decision caught analysts off guard, as they were expecting the central bank to keep its reference rates unchanged in this month's update. The cut in the one-year LPR is in addition to the decision to also lower the reference rate for mortgages with a term of five years or more, which will decrease from 3.95% to 3.85%. The objective of these interest rate cuts is to reduce borrowing costs and support the 'real economy'. The last time a cut in the one-year LPR occurred was in August of last year, when it was reduced from 3.55% to 3.45%. Experts believe that this new measure by the PBC could be related to the need to stimulate a real estate market that has been experiencing a prolonged crisis. In addition to cutting interest rates, the People's Bank of China also announced a ten basis points cut to the seven-day reverse repurchase agreements ('repos') rates, decreasing from 1.8% to 1.7%. This measure aims to facilitate liquidity injections into the Chinese financial system and provide financial support to the real economy. Furthermore, the institution will also reduce the collateral requirements for medium-term lending facilities (MLF) for banks and financial institutions. It is important to note that these announcements come in a global context where major economies are taking measures to address the economic uncertainty generated by the COVID-19 pandemic and other factors. While some countries have been raising interest rates to contain inflation, China has opted for a more flexible policy to support its economic growth. The interest rate cut and other measures taken by the People's Bank of China reflect the authorities' concern to stimulate economic activity and stabilize key sectors such as the real estate market. These decisions could have a significant impact on the Chinese economy and international financial markets, raising expectations about how monetary policy will evolve in the near future. The PBC's announcement also sends signals to investors and other central banks about the direction that China's economic policy could take in the coming months. In a context of economic and geopolitical challenges, the decisions of the Chinese authorities take on special relevance and are closely monitored by financial markets and international analysts.