China Sticks With Medium-Term Policy Rate For a Sixth Month

The People’s Bank of China (PBOC) stuck with its medium-term policy rate for a sixth straight month on Friday, with some analysts suggesting that China’s central bank may gradually normalise monetary policy after the easing made during Covid lockdowns.

PBOC left the rate on 100 billion yuan ($14.8 billion) worth of one-year medium-term lending facility (MLF) loans to some financial institutions unchanged at 2.85% from the previous operation.

Friday’s medium-term lending facility operation was aimed at “keeping banking system liquidity reasonably ample,” the central bank said in an online statement.

In a poll of 29 market watchers conducted this week, all respondents forecast no change to the MLF rate.

Traders and economists noted that the central bank had recently signalled a less accommodative monetary policy in the second half of the year.

China Says Liquidity Conditions Ample

When asked about chances of further reduction to banks’ reserve requirement ratio (RRR) and interest rates, the central bank said recent liquidity conditions were already ample and even slightly high.

“There are still chances to cut the loan prime rate (LPR) in the second half of this year, but policy rates are unlikely to be lowered,” Xing Zhaopeng, senior China strategist at ANZ, said.

The monthly LPR fixing, which now serves as China’s benchmark lending rate, is due next Wednesday.

Meanwhile, the PBOC has reduced the volume of daily reverse repos volume since the start of this month by making its biggest cash withdrawal from the financial system in three months last week.

The move raised market speculation that policymakers are gradually exiting crisis-mode monetary easing delivered during Covid lockdowns.

With the same amount of such MLF loans maturing on Friday, the operation resulted in a zero net cash injection into the banking system.

The central bank also injected 3 billion yuan through seven-day reverse repos while keeping borrowing costs unchanged at 2.1%, according to the statement.

Reuters with additional editing by Jim Pollard

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Jim Pollard

Jim Pollard is an Australian journalist based in Thailand since 1999. He worked for News Ltd papers in Sydney, Perth, London and Melbourne before travelling through SE Asia in the late 90s. He was a senior editor at The Nation for 17+ years and has a family in Bangkok.