China holds rates, adds more liquidity as recovery struggles

  • China’s central bank rolled over maturing medium-term policy loans while keeping the interest rate unchanged on Monday, as expected, but markets expect monetary easing may be inevitable in the coming months to support the economic recovery.
  • The People’s Bank of China (PBOC) said it was keeping the rate on CNY125bn (USD18.08bn) worth of one-year medium-term lending facility (MLF) loans to some financial institutions unchanged at 2.75% from the previous operation.
  • 15 May’s operation was meant to fully meet financial institutions’ needs and to “maintain reasonably ample banking system liquidity,” the PBOC said in an online statement.
  • The government lifted stringent pandemic measures in Dec 22 that have started to rekindle credit demand in the world’s second-largest economy, but there are growing concerns that momentum is slowing after the initial bounce.
  • With evidence of subdued domestic demand and weak investor sentiment, Beijing will likely have to ramp up its easing efforts to ensure the economic recovery stays on track.
  • With CNY100bn worth of MLF loans set to expire in May 23, the operation resulted in a net CNY25bn fresh fund injection into the banking system.
  • The central bank also injected CNY2bn through seven-day reverse repos while keeping borrowing costs unchanged at 2.00%, it said in an online statement.

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