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Surprise rate cut to help solidify economic rebound

Surprise rate cut to help solidify economic rebound

China's central bank delivered surprise interest rate cuts on Monday, suggesting that the country is still willing to lend more monetary support on the aggregate front in the coming months despite a potential rise in structural inflationary pressure, experts said.

Thanks to Monday's rate cuts, the country's loan prime rates-or the market-driven benchmark lending rates-are likely to see reductions this month, helping revive corporate credit demand and mitigate a real estate slowdown, they said.

The People's Bank of China conducted 400 billion yuan ($59.2 billion) in medium-term lending facility operations on Monday at an interest rate of 2.75 percent, down from 2.85 percent a month earlier.

Using the MLF rate as a key policy benchmark, the PBOC had kept it unchanged for six months until Monday's reduction. The interest rate of seven-day reverse repurchase agreements was also trimmed by 10 basis points to 2 percent on Monday.

Most market participants had not expected the central bank to launch the rate cuts as it had flagged the risk of structural inflationary pressure and its intention to fend off cross-border capital outflow risks amid overseas monetary tightening in a report last week.