Today (February 17), the People’s Bank of China issued an announcement stating that in order to offset the impact of factors such as the expiration of the central bank’s reverse repurchase and maintain reasonable and sufficient liquidity in the banking system, the People’s Bank of China announced on February 17, 2020 A 200 billion yuan medium-term lending facility (MLF) operation and a 100 billion yuan 7-day reverse repurchase operation were carried out. And the central bank lowered the 1-year MLF interest rate to 3.15%; it was previously 3.25%, which means that the LPR (Loan Prime Rate) on January 20 will have an interest rate cut of at least 10 basis points.

The last time the central bank launched a one-year medium-term lending facility operation was on January 15. The announcement is as follows:

It can be seen that the interest rate on January 15 was 3.25 , it was 3.15 on February 17, a decrease of 10 basis points.

Data show that the 1-year medium-term lending facility (MLF) is currently the most important "policy rate" and is the basic coordinate that affects the current loan market quotation rate (LPR).

After the interest rate reform last year, the loan interest rates in the "Commercial Bank Deposit and Loan Benchmark Interest Rates" were basically abolished. The so-called LPR is the average price quoted by 18 banks on the 20th of each month, excluding the highest price and the lowest price. The National Interbank Lending Center is entrusted by the central bank to be responsible for statistics and release. All new loans of all banks shall be implemented with reference to LPR.

In fact, on February 3, the central bank already revealed a 10 basis point interest rate cut in its quotations for 7-day reverse repurchase and 14-day reverse repurchase. But the signal is stronger today because the 1-year MLF rate is so important. Two days ago, Pan Gongsheng, deputy governor of the central bank, also "predicted" that MLF interest rates and LPR interest rates will fall simultaneously.

Regarding this interest rate cut, Liu Xiaobo, a well-known economic blogger, said that first, the interest rate cut is good for the real economy, stock market, and property market, and it is expected. As I just said, the central bank sent a signal to cut interest rates on February 3, and later the deputy governor of the central bank revealed it. Therefore, the interest rate cut is basically a "clear sign", showing that the transparency of the central bank of China is increasing. I won't go into details here. ?Second, the interest rate cut is not large, only 10 basis points, showing that management is unwilling to overstimulate asset prices. ?Historically, the central bank’s standard rate cut is 25 basis points. Last year, the central bank changed its approach and cut interest rates by only 5 basis points at a time. I described it as "breaking off 5 pieces of a steamed bun and using it 5 times at a time." This time there was an epidemic, and 10 basis points were given. Third, after this round of interest rate cuts, there will be another rate cut in 2020, at least 15 basis points, or even more room.

Source: Central Bank, Liu Xiaobo talks about finance