(Yicai Global) March 30 -- The People's Bank of China today lowered its seven-day interest rate on reverse repurchase agreements -- what the central bank charges on loans to other banks -- by 0.2 percentage point, the steepest cut in five years. The country has now entered a new stage of intensified countercyclical adjustment, an official at the central bank is reported as saying.

The PBOC injected CNY50 billion (USD7 billion) into the financial markets through reverse repo operations and cut the seven-day interest rate to 2.2 percent from 2.4 percent set on Feb. 17, when it last conducted a reverse repo.

The decision to lower the open market rate will have been based on a thorough consideration of the needs of domestic companies as they return to work, the spread of the Covid-19 contagion internationally and the deterioration of the external economic environment, financial news outlet Jinrong Shibao reported, citing Ma Jun, a member of the central bank's Monetary Policy Committee.

Unlike countries that have introduced stimulus policies on an unprecedented scale to shore up their economies, China is the only major economy to maintain normal monetary policy, Ma added.

The PBOC still has enough space for monetary policy adjustment, he said, adding that it has not used up all its ammunition at once and has maintained its strength and flexibility when using monetary policy tools.

Last August, the PBOC introduced a reformed loan prime rate mechanism to help cut financing costs for businesses. The LPR reform has improved the transmission of interest rates from the money market to the loan market, Ma said. Changes in interest rates in the money market can ultimately lead to changes in the interest rates on loans, he added.

The LPR functions as a market-based benchmark for lenders to set their loan rates. The new rate is announced every month and is based on the central bank's open market operations and especially its medium-term lending facility rates.

Editor: Kim Taylor