China’s central bank cut rates last week on a short-term lending facility that is traditionally used to provide liquidity to commercial (usually small) business lenders, The Wall Street Journal reported Thursday (Nov. 19).
The move comes as the latest salvo in an attempt to boost, or at least support, economic growth, which seems to be inexorably slowing. The move follows six interest rate cuts and a freeing-up of bank reserves, and all of these actions have taken place in the past 12 months. Heretofore, the cuts have applied to larger banks and to the industries that have typically been overseen by the state; they have not traditionally extended to the borrowing activity that is the hallmark of smaller businesses.
The newest rate reduction comes in order to stoke demand from small and private businesses for loans even while the traditional financial lenders in the country have been reluctant to do so. For the banks, there is now, with last week’s cut, a reduction in the overnight lending rate on what is known as the standing lending facility, commonly known as SLF. That rate has been taken down to 2.75 percent from the most recent 4.5 percent. The seven-day bank loan rates are also lower, now at 3.25 percent from 5.5 percent. The range of lenders likely positively affected by the rate cut include city-centered commercial banks, trust companies and credit cooperatives, and these lenders all do business with private borrowers.
[bctt tweet=”The newest rate reduction comes in order to stoke demand from small and private businesses for loans.”]
The idea, said WSJ, is to ease the way for banks to lend, rather than kickstart the economy itself.
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