Central Bank of China partially rolls over medium-term loans with maturity, rate unchanged

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SHANGHAI (Reuters) – The central bank of China partially extended the maturity of its medium-term loans on Thursday, the same day that reductions in reserve requirements for banks take effect.

PHOTO: Headquarters of the People’s Bank of China (PBC), the central bank, pictured in Beijing, China, September 28, 2018 REUTERS / Jason Lee

The People’s Bank of China (PBOC) said in a statement that it is keeping the interest rate on annual medium-term loans (MLF) of 100 billion yuan ($ 15.46 billion) to some financial institutions at 2.95% from the previous transaction.

The new infusion did not cover all of the MF’s 400 billion yuan expiring loans maturing on the same day.

The NBK said the infusion was aimed at “maintaining sufficient liquidity in the banking system” as many institutions continued to experience medium and long-term demand for cash during the tax season, according to an online statement.

Last week, the NBK slashed the amount of cash banks must keep as reserves, freeing up about RMB 1 trillion in long-term liquidity to support China’s economic recovery from COVID, which is starting to lose momentum.

Compared to the long-term low cost of ruble reduction funds, MLF loans are quite expensive, and such MLF loans totaling 3.75 trillion yuan will expire in the remainder of this year.

The NBK said in the RRR cut it would release some liquidity to help financial institutions repay MLF loans at maturity, but did not elaborate on any details in a statement on Thursday.

However, China’s unexpected decision to cut RRR has sparked speculation about further monetary easing to support the economy. Some market observers say that the country’s base rate may be cut in the near future, possibly as early as next week.

“Overall, we expect Beijing’s policies to carefully manage conflicting priorities to curb carbon emissions, curb rising commodity prices and at the same time prolong the economic recovery,” said Eugenia Victorino, head of SEB’s Asia strategy, earlier this week.

In the same statement, the NBK announced that it had poured another 10 billion yuan into the financial system in a seven-day reverse repurchase agreement, offsetting the same amount of such loans due on the same day.

(1 US dollar = 6.4688 RMB)

Vinnie Zhou and Andrew Galbraith reporting; Edited by Jacqueline Wong and Kim Coghill



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