SHANGHAI, July 14. (Reuters) – The People’s Bank of China (PBOC) asked commercial lenders about the demand for loans under the medium-term credit line (MLF) ahead of Thursday’s liquidity operation, which is being watched closely for any signs of this. is changing its political stance, two market sources with direct knowledge of the matter said on Wednesday.
MLF’s 400 billion yuan ($ 61.81 billion) annual loan package is due on Thursday. Last week, China surprised the markets by lowering reserve requirements for banks and said some of the money freed up would be used to pay off debt.
The sources said the NBK asked some commercial banks on Monday about the expected demand for additional loans from the Ministry of Finance.
On Friday, the NBK said it would cut the amount of cash that banks must hold in reserves, freeing up about 1 trillion yuan ($ 154.58 billion) in long-term liquidity from July 15 to support China’s post-COVID economic recovery, which is beginning to improve. lose steam.
Typically, the NBK extended the maturity of MOF loans and replenished them frequently in order to prevent a reduction in liquidity in the banking system. At the same time, he announces interest rates on new loans, signaling his political intentions to financial markets.
Most analysts do not expect an imminent MLF rate cut, but there is growing speculation that China may cut base lending rates as early as next week, especially if Thursday’s economic data turns out to be weaker than expected. read more
“(Markets) thought there would be no rollover after the RRR declined, but (the central bank) still asked about demand on Monday,” one source said.
It was unclear how much cash from the RRR cut would be used to pay off the maturing MLF loans.
Sources noted that such requests for MOF requirements do not guarantee MOF performance.
Analysts and traders say that if the NBK plans to inject more cash through the liquidity instrument on Thursday, money rates and bond yields are likely to fall further.
Compared to the long-term low cost of funds due to the reduction in RRR, MLF loans are quite expensive, with an annual interest rate of 2.95%. MoF loans totaling 4.15 trillion yuan will expire in the second half of this year.
Market speculation is growing over whether the NBK’s RRR cut was a one-off preemptive move to reduce the cost of corporate borrowing and ensure adequate liquidity, or whether it signals a possible shift to easier policies when economic growth hits a soft streak. Until last week, investors believed this was slowly rolling back the pandemic’s overwhelming stimulus. read more
According to the latest Reuters poll released on Tuesday, the NBK is likely to cut the RRR by another 50 basis points in the fourth quarter as pressure on the economy persists and consumer inflation eases. read more
Sun Guofeng, head of the NBK’s monetary policy department, told media on Tuesday that China will maintain its usual monetary policy, prioritizing stability and focusing on domestic conditions. read more
(1 US dollar = 6.4690 RMB)
Reporting by the Shanghai and Beijing newsrooms; Edited by Kim Coghill
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