China Central Bank Renews Maturing Loans and Injects Cash, Reports Reuters

SHANGHAI (Reuters) – On Monday, China’s central bank extended maturing medium-term loans and injected liquidity into the market to meet growing expectations for further easing amid ongoing economic challenges.

The People’s Bank of China (PBOC) announced it was maintaining the interest rate on 300 billion yuan (approximately $42.11 billion) of one-year medium-term lending facility (MLF) loans to certain financial institutions at 2.30%, consistent with rates from the previous operation.

Additionally, the bank infused another 471 billion yuan through seven-day reverse repurchase agreements, keeping the borrowing cost steady at 1.70%.

Frances Cheung, head of foreign exchange and rates strategy at OCBC Bank, remarked, "Today’s outcome adds to the expectation for a near-term reserve requirement ratio cut." She noted that given declining rates in the United States, there might also be renewed speculation regarding an interest rate cut in China.

China continues to grapple with a prolonged property crisis, which has suppressed both investment and consumer demand. The central bank indicated that the reverse repo operation aimed to "maintain reasonably ample liquidity conditions in the banking system at month-end."

Earlier this month, a batch of MLF loans totaling 401 billion yuan was due; however, the PBOC decided to delay the loan rollover. Analysts observed that this postponement and a series of significant interest rate cuts last month suggest a shift in the PBOC’s monetary policy framework, prioritizing short-term rates as key indicators for market direction.

Cheung anticipates a steepening yield curve between 5-year and 30-year, as well as 2-year and 30-year China government bond yields.

PBOC Governor Pan Gongsheng, in statements reported by state media over the weekend, reaffirmed the bank’s commitment to a supportive monetary policy aimed at fostering reasonable credit growth and bolstering the world’s second-largest economy.

Furthermore, on Friday, Federal Reserve Chair Jerome Powell emphasized that the U.S. central bank is prepared to pivot toward interest rate cuts in the lead-up to the presidential election, highlighting the protection of the job market as the priority.

($1 = 7.1244)