SHANGHAI/SINGAPORE (Reuters) – China’s central bank left a key policy rate unchanged when rolling over maturing medium-term lending facility (MLF) loans on Wednesday, in line with market expectations.
WHY IT’S IMPORTANT
The steady MLF rate shows the central bank’s focus on keeping currency stability, analysts say, even as an unexpected credit contraction in April added to the case for more policy stimulus to prop up the world’s second-largest economy.
The MLF loan operation also comes days ahead of the finance ministry’s scheduled sales of the first batch of 1 trillion yuan in ultra long-term special treasury bonds.
BY THE NUMBERS
The People’s Bank of China (PBOC) said it was keeping the rate on 125 billion yuan ($17.28 billion) in one-year MLF loans to some financial institutions unchanged at 2.50% from the previous operation.
In a Reuters survey of 32 market watchers, 84% of respondents expected the PBOC to leave the interest rate on MLF rate unchanged.
CONTEXT
China’s yuan has lost about 1.9% against a resurgent U.S. dollar so far this year, pressured by its relatively low yields versus other economies.
Beijing will step up support for the economy with monetary and fiscal policies, including cuts in interest rates and bank reserve requirement ratios (RRR), the Communist Party’s Politburo said in late April.
KEY QUOTES
“Recent data with low inflation, credit contraction, slowing money supply growth, and weak private sector investment present a strong case for rate cuts, suggesting that real interest rates remain too high and that RRR cuts are seeing diminished effectiveness,” economists at ING said in a note before the rate decision.
“With that said, currency stabilisation has been a key consideration this year, and policymakers likely prefer for global rate cuts to begin before starting to cut rates,” they said.
($1 = 7.2330 )
