Dec 14, 2023: China’s central bank is anticipated to increase liquidity injections while keeping the key interest rate stable during the rollover of maturing medium-term policy loans scheduled for Friday, as indicated by a Reuters survey.
Out of thirty-two surveyed market participants this week, 29 individuals, accounting for 91%, anticipated that the People’s Bank of China (PBOC) would maintain the current borrowing cost of one-year medium-term lending facility (MLF) loans. Meanwhile, the remaining three participants projected a marginal reduction in interest rates. Presently, the interest rate on the MLF loans stands at 2.5%.
Moreover, 26 respondents, representing 81% of the total, predicted that the central bank would inject new funds exceeding the maturing 650 billion yuan ($91.11 billion) worth of MLF loans slated for Friday.
Frances Cheung, rates strategist at OCBC Bank, remarked, “We anticipate an expanded MLF to offset liquidity demands arising from bond sales and loans; should an expanded MLF not materialize, a reserve requirement ratio (RRR) cut might be necessary.”
China has recently initiated a fresh round of stimulus measures to support its economy. In an unexpected move, Beijing sanctioned 1 trillion yuan of sovereign bond issuance late in October for this year, marking its first fiscal year deficit expansion in 23 years. Additionally, a bill was passed allowing local governments to frontload a portion of their 2024 bond quotas.
In November, the PBOC injected a net 600 billion yuan via MLF loans into the banking system, marking the most substantial monthly increase since December 2016.