SHANGHAI/SINGAPORE (Reuters) – The People’s Bank of China on Sunday left its key policy interest rate unchanged as expected as it rolls over maturing medium-term loans, but the central bank left its key policy interest rate unchanged as expected, but the Federal Reserve’s easing of Uncertainty over timing limits Beijing’s scope for monetary policy maneuvering.
The Chinese government is striking a delicate balance in supporting the economy as signs of persistent deflationary pressures call for further stimulus. However, any aggressive financial moves risk reigniting downward pressure on the Chinese currency and capital outflows.
Traders and analysts believe China may hold back on its imminent rollout of stimulus, as the latest U.S. economic data prompts investors to delay the start of Fed monetary easing from March until at least mid-year I predict that there will be.
The People’s Bank of China (Central Bank) announced that the interest rate on one-year medium-term lending facility (MLF) loans worth 500 billion yuan ($69.51 billion) to some financial institutions will remain unchanged at 2.50% from the previous operation. did.
The central bank said in an online statement that Sunday’s operations were aimed at “maintaining reasonably ample liquidity in the banking system.”
A Reuters poll of 31 market participants found that 22 people, or 71% of respondents, expected the central bank to keep borrowing costs for one-year MLF loans unchanged as of February 18.
The operation injected a net 1 billion yuan of new funds into the banking system as 499 billion yuan worth of MLF loans expire this month.
Zhang Wei Liang, currency and credit strategist at DBS, said the stability in MLF rates was due to “policymakers’ desire to keep the renminbi pegged and limit negative interest rate differentials with the US dollar.”
Still, the central bank’s decision earlier this month to sharply reduce bank reserves has led some investors and market watchers to anticipate further monetary easing measures in the coming months to support the world’s second-largest economy. We are increasing our bets on
In its latest Monetary Policy Implementation Report, the People’s Bank said it will maintain flexible policy to expand domestic demand while maintaining price stability.
“We still expect two rate cuts in the first and second quarters, with open market operations (OMO) rates and MLF rates set at 15 basis points each,” said Ting Lu, Nomura’s chief China economist. ”. Financing business.
He added that the latest easing measures, including a cut in reserve requirement ratio (RRR) earlier than expected, “failed to stabilize market sentiment”.
The central bank-backed Financial News on Sunday cited market participants as saying the benchmark loan prime rate (LPR) could fall within days, potentially cutting five-year interest rates. It was reported to be expensive.
“The reduction in the five-year LPR will help stabilize confidence, promote investment and consumption, and support the stable and healthy development of the real estate market,” the paper said shortly after the MLF rate decision. said on his WeChat account.
While most new and outstanding loans in China are based on a one-year LPR, five-year interest rates influence mortgage pricing. The monthly revision of the LPR is scheduled to take place on February 20th.
(1 dollar = 7.1929 Chinese Yuan)
(Reporting by Winni Zhou and Tom Westbrook; Editing by Raju Gopalakrishnan and Michael Perry)