China seen rolling over medium-term loans, rate change not expected

2:21 am Monday, February 14th, 2022

SHANGHAI (Reuters) – China’s central bank is expected to roll over its medium-term loans maturing this week, but a second consecutive cut to its lending rate is seen as unlikely, a Reuters survey showed.

Nineteen out of 22 financial institutions surveyed said they expect the People’s Bank of China (PBOC) to issue 200 billion yuan ($31.45 billion) in maturing medium-term lending facility (MLF) loans on Tuesday, matching the amount maturing on Friday.

The remaining three said they expect issuance to slightly exceed the value of loans maturing this week as an indication of the PBOC’s easing stance.

All survey respondents said they expect the MLF rate to remain stable.

In January, the PBOC unexpectedly cut the rate on one-year MLF loans to some financial institutions by 10 basis points to 2.85% from 2.95% previously, alongside a 10 basis-point cut in the seven-day reverse repurchase agreement rate.

Those cuts kicked off a small flurry of further cuts, with the country also trimming rates on its standing lending facility (SLF) loans, and its benchmark loan prime rates (LPRs).

The MLF rate serves as a guide to the LPR, which is decided on the 20th of each month.

However, expectations for another cut are limited, particularly following stronger-than-expected lending data for January, which was seen addressing some concerns over the strength and effectiveness of policy stimulus.

“I don’t think rates are likely to move. January credit data wasn’t bad, I think we have to watch another month,” said Zhou Hao, senior economist at Commerzbank Asia.

The PBOC said on Friday it would keep liquidity reasonably ample and step up financing support for key sectors and weak links of the economy, but not resort to “flood-like” stimulus.

In addition to the 200 billion yuan in MLF loans maturing on Friday, a total of 300 billion yuan in reverse repos mature this week.

The PBOC drained a net 210 billion yuan from the financial system on Monday through its regular open market operations, conducting a 10 billion yuan seven-day reverse repo operation against 220 billion yuan in maturing seven- and 14-day reverse repos. [CN/MMT]

($1 = 6.3587 Chinese yuan)

(Reporting by Reuters fixed income team; Writing by Andrew Galbraith; Editing by Sam Holmes)