China vs. Bank partially renews maturing medium-term loans, rate unchanged

SHANGHAI, July 15 (Reuters) – China’s central bank partially rolled over medium-term loans maturing on Thursday, the same day a reduction in bank reserve requirements goes into effect.

The People’s Bank of China (PBOC) said in a statement that it is keeping the interest rate on 100 billion yuan ($ 15.46 billion) of one-year medium-term loans (MLF) granted to certain institutions. financials at 2.95% compared to the previous operations.

The new cash injection did not cover all maturing MLF loans worth 400 billion yuan due on the same day.

The PBOC said the cash injection was aimed at “keeping the banking system’s liquidity reasonably abundant,” as many institutions still had a demand for medium and long-term liquidity in the middle of the tax payment season, according to one. online press release.

Last week, the PBOC reduced the amount of liquidity banks are required to hold as reserves, freeing up about 1 trillion yuan in long-term liquidity to support China’s post-COVID economic recovery, which is starting to run out of steam. .

Compared to the long-term low cost of funds from RRR cuts, MLF loans are rather expensive, and a total of 3.75 trillion yuan of such MLF loans is expected to expire in the remainder of this year.

The PBOC had said in the RRR cut decision that it would release some of the cash to help financial institutions repay maturing MLF loans, but did not specify any of the details in Thursday’s statement.

However, China’s surprise decision to cut the RRR has fueled speculation about further monetary easing to support the economy. Some market watchers say a cut in the country’s benchmark loan prime rate could be the next step, possibly as early as next week. Read more

“Overall, we expect Beijing’s policies to carefully manage the competing priorities of limiting carbon emissions, capping gains on commodity prices and while prolonging the economic recovery,” said Eugenia Victorino, Head of Asia Strategy at SEB, earlier this week.

In the same statement, the PBOC said it injected an additional 10 billion yuan of seven-day reverse repurchases into the financial system, offsetting the same amount of those loans due on the same day.

($ 1 = 6.4688 Chinese yuan)

Reporting by Winni Zhou and Andrew Galbraith; Editing by Jacqueline Wong and Kim Coghill

Our Standards: The Thomson Reuters Trust Principles.