China's Central Bank Initiates Surprise Rate Cut to Boost Economy

China's central bank has unexpectedly cut a vital short-term policy rate to support the real economy. The People's Bank of China (PBOC) reduced the seven-day reverse repo rate from 1.8% to 1.7% and plans to improve open market operations. This move aims to fortify counter-cyclical adjustments amidst economic downturn pressures.

China's central bank made a surprise move Monday by cutting a key short-term policy rate to bolster the real economy.

The People's Bank of China (PBOC) announced it would reduce the seven-day reverse repo rate to 1.7% from 1.8% and improve the open market operations mechanism. Following the announcement, Chinese bond yields fell across the board. The objective of the rate cut, according to the PBOC, is to 'strengthen counter-cyclical adjustments to better support the real economy.'

'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,' commented Zhang Zhiwei, president and chief economist of Pinpoint Asset Management. 'The fact that PBOC didn't wait for the Fed indicates that the government recognizes the downward pressure on China's economy.'

This announcement follows PBOC's recent pledge to revamp its monetary policy transmission channel. PBOC Governor Pan Gongsheng noted last month that the seven-day reverse repo effectively functions as the main policy rate. China is also set to announce benchmark lending rates on Monday.

(With inputs from agencies.)