China unexpectedly cuts 2 key rates, withdraws cash from banking system

SHANGHAI, Aug 15 (Reuters) – China’s central bank unexpectedly cut key interest rates for the second time this year and withdrew some cash from banking system on Monday, in an attempt to revive credit demand to support the COVID-hit economy.

The People’s Bank of China (PBOC) said it was lowering the rate on 400 billion yuan (USD 59.33 billion) worth of one-year medium-term lending facility (MLF) loans to some financial institutions by 10 basis points (bps) to 2.75%, from 2.85% previously.

In a poll of 32 market watchers conducted last week, all respondents forecast the MLF rate would be kept steady, while 29 predicted there would be a partial rollover.

With 600 billion yuan worth of MLF loans maturing on Monday, the operation resulted a net 200 billion yuan fresh fund withdrawal from the banking system.

The central bank also injected 2 billion yuan through seven-day reverse repos while cutting the borrowing cost by the same margin of 10 bps to 2.0% from 2.1% previously, according to an online statement.

The PBOC lowered both rates by 10 bps in January.

(Reporting by Winni Zhou and Brenda Goh; Editing by Kim Coghill)