China central bank keeps medium-term policy rate unchanged for a sixth month

10:48 pm Thursday, July 14th, 2022

SHANGHAI (Reuters) -China’s central bank stood pat on its medium-term policy rate for a sixth straight month on Friday, as expected, with investors believing that the bank intends to gradually normalise monetary policy after the easing made during COVID lockdowns.

The People’s Bank of China (PBOC) left the rate on 100 billion yuan ($14.8 billion) worth of one-year medium-term lending facility (MLF) loans to some financial institutions unchanged at 2.85% from the previous operation.

Friday’s MLF operation was aimed at “keeping banking system liquidity reasonably ample,” the central bank said in an online statement.

In a poll of 29 market watchers conducted this week, all respondents forecast no change to the MLF rate.

Traders and economists noted that the central bank had recently signalled a less accommodative monetary policy in the second half of the year.

When asked about chances of further reduction to banks’ reserve requirement ratio (RRR) and interest rates, the central bank said recent liquidity conditions were already ample and even slightly high.

“There are still chances to cut the loan prime rate (LPR) in the second half of this year, but policy rates are unlikely to be lowered,” said Xing Zhaopeng, senior China strategist at ANZ.

The monthly LPR fixing, which now serves China’s benchmark lending rate, is due next Wednesday.

Meanwhile, the PBOC has reduced the volume of daily reverse repos volume since the start of this month by making its biggest cash withdrawal from the financial system in three months last week.

The move raised market speculation that policymakers are gradually exiting crisis-mode monetary easing delivered during COVID lockdowns.

With the same amount of such MLF loans maturing on Friday, the operation resulted in a zero net cash injection into the banking system.

The central bank also injected 3 billion yuan through seven-day reverse repos while keeping borrowing cost unchanged at 2.1%, according to the statement.

($1 = 6.7542 yuan)

(Reporting by Winni Zhou and Brenda Goh; Editing by Jacqueline Wong & Simon Cameron-Moore)