China’s Medium-Term Policy Rate Steady, For Now

Despite Beijing’s request for further monetary stimulus to cushion an economic downturn, China’s central bank left borrowing prices of its medium-term policy loan steady for the third month on Friday, as predicted.

According to an online statement, the People’s Bank of China (PBOC) said it would keep the rate on 150-billion-yuan ($23.52 billion) in one-year medium-term lending facility (MLF) loans to some financial institutions at 2.85 percent, unchanged from the previous operation, to “maintain banking system liquidity reasonably ample.” In a survey, 31 out of 45 traders and experts, or roughly 70% of all respondents, predicted no change in the MLF rate.

Instead, after the State Council, or cabinet, called for the prompt deployment of such monetary measures on Wednesday, markets are increasingly expecting a cut in the number of cash banks must hold aside as reserves.

Central Bank’s Efforts for Recovering

Many global investment banks, including Citi, believe that such a reserve requirement ratio (RRR) drop might come as soon as Friday, with other easing measures likely to follow. Senior China economist at Capital Economics stated that “This year, we forecast another 20-basis-point cut in policy rates and an increase in credit growth.”

The rapid spread of COVID-19 cases has prompted lockdowns in a dozen locations throughout the country, including Shanghai’s financial center, sparking fears of greater economic disruptions.

According to economists, this implies that authorities would need to provide additional stimulus to keep the economy on track to meet this year’s 5.5 percent growth target. According to a recent poll, China’s economic growth is expected to fall to 5.0 percent in 2022 because of additional COVID-19 outbreaks and faltering global recovery, putting further pressure on the central bank to loosen policies. The exercise resulted in zero net cash infusion into the banking sector. MLF loans totaling 150 billion yuan due on Friday.

According to an online statement, the central bank also injected 10 billion yuan into china through seven-day reverse repos while holding the borrowing rate at 2.1 percent.