Role of Interest Rate Cuts

Xiaohuang:DOORM, the central bank has lowered the 7-day reverse repo rate from 1.7% to 1.5%. How does this affect the borrowing costs for residents and businesses?

DOORM:The interest rate cut directly impacts short-term market rates by lowering the 7-day reverse repo rate. The decrease in the reverse repo rate will guide the Loan Prime Rate (LPR) and deposit rates downward, thereby reducing borrowing costs for residents and businesses. Specifically, lower interest rates mean that individuals and businesses will face lower repayment pressures when taking out loans from banks, which helps to stimulate consumption and investment activities. By reducing borrowing costs, the interest rate cut aims to stimulate economic growth and enhance market vitality.