China central bank cuts short-term policy rate

China central bank cuts short-term policy rate

China's central bank on Monday cut a key short-term policy rate in a surprise move to support the real economy.

The People's Bank of China said it would cut the seven-day reverse repo rate to 1.7% from 1.8%, and would also improve the mechanism of open market operations. Chinese bond yields fell across the board after the rate cut announcement.

The rate cut is aimed at "strengthening counter-cyclical adjustments to better support the real economy," the PBOC said in a statement.

"The rate cut is one step in the right direction. I expect more rate cuts to come after the Fed enters a rate cut cycle," said Zhang Zhiwei, president and chief economist of Pinpoint Asset Management.

"The fact that PBOC didn’t wait for the Fed to cut first indicates that the government recognises the downward pressure on China’s economy."

The announcement comes after the PBOC said it would revamp its monetary policy transmission channel. PBOC Governor Pan Gongsheng said last month the seven-day reverse repo basically serves the function of the main policy rate.

China will also announce benchmark lending rates on Monday.