A decision by the People's Bank of China (PBoC) to lower short-term borrowing costs for banks is not the standard pick-me-up aimed at a weakening economy.
Instead, the latest step by the PBoC is an experiment towards finding alternatives to benchmark interest rates whose efficacy has been blunted in recent years by the surge in the shadow banking system as well as removal of limits that tied commercial bank rates to official policy rates, economists say.
Late on Thursday, the central bank reduced its Standing Lending Facility (SLF) interest rates, yet another policy tool to inject cash into banks, with the seven-day rate cut to 3.25 percent and the overnight rate to 2.75 percent from 5.5 percent and 4.5 percent, respectively.
Typically, Chinese monetary stimulus relies on interest rate cuts or reductions in bank reserve requirements, with the lesser-known SLF only being used in anticipation of periods of tight liquidity, such as holidays. The facility hasn't been used since March.
Thursday's departure from traditional policy tools suggests that the central bank wasn't necessarily trying to boost economic growth, unlike previous easing episodes.