(May 26): China let the interest rate on a one-year policy loan to banks decline to a record low, according to people familiar with the matter, a sign Beijing is stepping up efforts to support an economy that’s losing momentum.
Some banks borrowed from the People’s Bank of China’s one-year medium-term lending facility, or MLF, at rates as low as 1.45% in May, down from 1.5% in April, said the people, who asked not to be identified discussing private matters. This follows a similar drop of five basis points in January.
It remains unclear how much of the 600 billion yuan in MLF loans issued this month was priced at the lowest rate. The PBOC has stopped publishing the data since March 2025, when it revised the method for pricing the loan and started to allow banks to bid for and pay different rates.
The PBOC didn’t immediately respond to a faxed inquiry for comment.
The decline in borrowing costs comes as China’s economy shows signs of faltering after a strong first quarter. Growth slowed across the board in April, with industrial production and retail sales posting their weakest gains in years, prompting economists to call for stronger policy support from Beijing.
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While China has shifted to prioritising the seven-day reverse repurchase rate as its main policy rate anchor and downplayed the official role of the MLF, a cut still signals the PBOC is comfortable with the recent declines in money-market rates, helps lower banks’ funding costs and may spill over to cheaper financing for other borrowers.
The PBOC reiterated a pledge in its latest quarterly report to maintain a “moderately loose” monetary policy and keep liquidity ample to support growth, even as it flagged concerns about imported inflation.
The central bank made a net injection of 100 billion yuan into the banking system via the MLF in May, reversing a net withdrawal in April, according to Bloomberg calculations. It has also recently increased the amount offered in daily open market operations ahead of the month-end.
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