PBOC Keeps Status Quo on Liquidity With Policy Loan Rollover
(Bloomberg) -- China added enough medium-term funds into the financial system to maintain liquidity at existing levels as policy makers looked to strike a balance between supporting the economy without fueling asset bubbles.
The People’s Bank of China injected 500 billion yuan ($77.6 billion) through its medium-term lending facility, matching the 500 billion yuan maturing Friday. The outcome was in line with forecasts from five of the eight analysts surveyed by Bloomberg News. The MLF rate was left at 2.95%.
The PBOC’s decision comes as rising price pressures spur uncertainty over the need for further monetary easing, while concerns mount over possible contagion from the China Evergrande Group debt crisis. Financial regulators told some major banks late last month to accelerate approval of mortgages in the last quarter, according to people with knowledge of the matter.
“It still looks like half glass full, half glass empty story,” said Tommy Xie head of Greater China research at Oversea-Chinese Banking Corp. in Singapore. “The key conflict in the market right now is the rising hope for more easing due to increasing conviction of slowing growth versus more patient policy makers under the framework of cross cyclical policy.”
Xie still sees room for the PBOC to cut the reserve-requirement ratio by 50 basis points this year. PBOC easing hopes are also kept alive with policy loan maturities of about two trillion yuan in the remainder of 2021.
Hao Zhou senior economist at Commerzbank AG in Singapore said the central bank may cut the one-year loan prime rate this month to help lower financing costs in the real economy. The rate, which is determined by a group of banks, is seen as China’s de facto benchmark rate for new loans. It’s held steady for 18 consecutive months and is due to be released on Oct. 20.
“The chance of another RRR cut in 2021 is low,” Zhou said.
PBOC Governor Yi Gang told the Group of 20 central bankers’ meeting held Wednesday that China’s prudent monetary policy will be “flexible, targeted, reasonable and appropriate” so as to support high-quality economic development. He added that the country’s inflation is “moderate” overall.
China’s 10-year yields steadied after rising nearly two basis points to 2.97% earlier. The 10-year bond futures fell to the lowest since early July. The central bank also added 10 billion yuan via seven-day reverse repurchase agreements in its open-market operations, matching the amount maturing.
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