News
China’s Bank C leaves key rate unchanged as expected
SHANGHAI/SINGAPORE (Reuters) – China’s central bank left a key interest rate unchanged as expected on Monday as it rolled over past due medium-term loans and drained some funds from the banking system.
BECAUSE IT’S IMPORTANT
The constant rate of the MLF is in line with market expectations, as the reduction in interest margins and the weakening of the currency remain the main constraints limiting Beijing’s room for maneuver to ease monetary policy to support the second largest economy in the world.
The MLF rate serves as a guide to lending prime rates (LPR) and markets primarily use the MLF rate as a precursor to any changes in lending benchmarks. The monthly fixation of LPRs expires on Thursday.
BY THE NUMBERS
The People’s Bank of China (PBOC) said it was keeping the rate of 182 billion yuan ($25.08 billion) in one-year loans from the medium-term loan facility (MLF) CNMLF1YRRP=PBOC for some financial institutions unchanged by 2.50% in relation to the previous Operation.
In a Reuters poll of 31 market observers, 30, or 97%, of all respondents expected the BPC to leave the MLF interest rate unchanged.
The net interest margin, which measures lenders’ profitability, decreased to 1.54% in the quarter, from 1.69% in the previous three months.
China’s yuan has lost more than 2.1% against the resurgence of the US dollar this year, pressured by its relatively low yields compared to other economies.
CONTEXT
China still has room to cut interest rates, but its ability to adjust monetary policy faces internal and external constraints, the official Financial News said, citing industry experts.
KEY QUOTES
“The slow pace of government bond issuance and weak credit demand from the private sector have recently led to ample initial liquidity, reducing the urgency for the People’s Bank of China to reduce the required reserve ratio (RRR) in the near term,” said economists at Goldman Sachs. in a note.
“We have pushed back our monetary easing forecast by one quarter and now expect the PBOC to deliver a 25 basis point RRR cut in the third quarter and a 10 basis point policy rate cut in the fourth quarter.”
(Reporting by Winni Zhou and Tom Westbrook; Editing by Kim Coghill and Stephen Coates)