PBOC Keeps Key Rate Untouched Ahead of Ultra-Long-Term Special Bond Roll Out
Zhang Yu
DATE:  May 15 2024
/ SOURCE:  Yicai
PBOC Keeps Key Rate Untouched Ahead of Ultra-Long-Term Special Bond Roll Out PBOC Keeps Key Rate Untouched Ahead of Ultra-Long-Term Special Bond Roll Out

(Yicai) May 15 -- The People’s Bank of China kept the size of its medium-term lending facility unchanged today and left the interest rate the same as the central bank prepares to inject additional liquidity into the financial system through ultra-long-term special bonds.

The central bank released CNY125 billion (USD17.3 billion) of fresh funds into the financial system through one-year MLF operations, and kept the rate at 2.5 percent, according to a statement on the PBOC’s website. The same amount matured today but the PBOC had trimmed the size in the two previous months.

The PBOC also injected CNY2 billion (USD277 million) in seven-day reverse repos, the same amount that matured, and kept the interest rate at 1.8 percent.

China plans to start issuing ultra-long special treasury bonds this month to raise funds for the implementation of major national strategies.

The impact of these bonds on liquidity is not as strong as it could be as they are not being issued all at once, Wen Bin, chief economist at Minsheng Bank, and Zhang Liyun, director of the Financial Market Research Center at the Minsheng Bank Research Institute, told Yicai, adding that the moderate operations of MLF loans can steady the volatility of funds in the market.

Tax payments are high in May and so keeping the size of MLF loans the same will help stabilize liquidity, they said. The Chinese yuan remains under pressure due to a strong US dollar, so it is best to keep interest rates stable in the short term.

Expectations of a reduction in banks’ reserve ratio requirements were dashed, they said. Monetary policy will remain steady and loose to promote a moderate recovery in prices and enhance support for the real economy.

To help stabilize the exchange rate and prevent funds from idling, it may be difficult to cut interest rates and the RRR before the fourth quarter, they added. However conditions are gradually improving.

Current price levels are low and are likely to remain so in the future, Golden Credit Rating said. Lowering the MLF interest rate is another important option.

Newly added credit will continue to increase, it said. The issuance of special bonds and ultra-long-term special treasury bonds will be accelerated. Lenders’ demand for MLFs will rise, so the size of MLF loans may increase.

To support the reasonable growth of credit and the smooth issuance of government bonds, the PBOC is likely to trim the RRR again in the third quarter, Golden Credit said.

Editor: Kim Taylor

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