The People's Bank of China (PBOC) announced on July 22 a cut in the seven-day reverse repo rate to 1.7% from 1.8%, marking the first reduction since August 2023. This move was quickly followed by cuts to benchmark lending rates, with the one-year loan prime rate (LPR) reduced to 3.35% from 3.45%, and the five-year LPR lowered to 3.85% from 3.95%.

These rate cuts signal China's intent to boost economic growth following weaker-than-expected second-quarter economic data and a recent Communist Party leadership meeting. Facing deflation risks, a prolonged property crisis, rising debt, and weak consumer and business sentiment, China aims to support its recovery through these monetary policy adjustments.

The PBOC also lowered the rates on its standing lending facility (SLF) and adjusted collateral requirements for medium-term lending facility loans, enabling banks to hold fewer long-term bonds. Following the rate cuts, China's yuan dipped to a near two-week low, and sovereign bond yields fell. The PBOC's actions reflect a strategic move to strengthen counter-cyclical adjustments and support the real economy.