China’s c. bank collects $17.3b in MLF loans

The People’s Bank of China (PBC) rolled over 125 billion-yuan ($17.3 billion) in maturing medium-term lending facility (MLF) loans, keeping the interest rate at 2.5 per cent to balance economic growth with currency stability, Bloomberg reported.

This decision comes despite a recent contraction in credit growth, highlighting the struggle to revive investment and consumption.

Analysts suggest this move prioritises yuan stability. Lowering rates could further weaken the yuan, which has already fallen around two per cent against the dollar this year due to a wide US-China yield gap.

The policy rate is kept unchanged given that economic data has stabilsed and the yuan is still under pressure, said Ming Ming, chief economist at Citic Securities Co.

The PBC’s cautious stance aligns with China’s reliance on fiscal stimulus to achieve its five per cent growth target for 2024. This is further emphasised by the upcoming issuance of 1 trillion yuan in ultra-long special government bonds, a rare move.

However, some economists believe rate cuts are still necessary. “China can’t only rely on exports,” said Zhang Zhiwei of Pinpoint Asset Management. “We need to do more to boost domestic demand.”

China’s ample liquidity also played a role. Cheaper funding options among commercial lenders currently exist, making the MLF loans less attractive.

The PBC’s decision reflects a delicate balancing act. While aiming to support growth, policymakers remain cautious about measures that could destabilise the yuan.