BEIJING, June 15 — China’s central bank today cut a key interest rate and injected US$33 billion (RM153 billion) into financial markets as more data showed the world’s second-largest economy was flagging.

The medium-term lending facility (MLF) rate — the interest for one-year loans to financial institutions — was lowered 10 basis points to 2.65 per cent, the People’s Bank of China said in a statement.

The PBOC also said it was offering 237 billion yuan of funds to banks through the medium-term lending facility, "to maintain reasonable and sufficient liquidity in the banking system”.

Today’s move comes after the bank announced a surprise cut in a short-term interest rate this week, which analysts said reflected growing concern about the state of the economy among Chinese policymakers.

In another sign of weakness, youth unemployment rose to a record 20.8 per cent in May, according to official data also released today.

The MLF rate guides the benchmark lending rate for households, businesses and mortgages, which is set to be announced next week.

A lowered MLF rate reduces commercial banks’ financing costs, in turn encouraging them to lend more and potentially boosting domestic consumption.

Fading recovery

Chinese authorities have announced a series of lacklustre economic indicators in recent months that have signalled the country’s post-Covid recovery is running out of steam.

Inflation rose only 0.2 per cent on-year in May, while factory activity contracted for the second consecutive month.

Exports sank in May for the first time since February, breaking a two-month growth streak as a post-Covid rebound faded.

Beijing has kept interest rates low compared with other major economies, but the near-zero inflation highlights challenges faced by policymakers as they try to stimulate growth.

Top economist and government adviser Liu Yuanchun this month called for regulators to cut borrowing costs further to ease the financing burden of small and medium-sized private businesses.

China’s six largest state-owned commercial banks cut interest rates for savers today to boost spending, according to announcements on their websites, after being asked by the central bank.

The Chinese economy is also weighed down by a debt-laden property sector and a global economic slowdown.

The property market experienced its "worst-ever slump” last year, with sales down 24 per cent, according to Gavekal-Dragonomics, a Beijing-based economic consultancy firm.

"We expect Beijing to ramp up transfers to local governments via an increase in the quota for special local government bonds, more lending quota for policy banks, and some direct funding from the PBoC,” Ting Lu, Chief China Economist at Nomura, said in a note earlier this week. — AFP