China’s c. bank set to keep rates unchanged

China’s central bank is likely to keep the key policy rate unchanged when renewing the matured medium-term loans in just over a week from now, reflecting the government’s focus on stabilising the currency, a Reuters survey showed on Thursday.

In a recent Reuters poll of 31 market analysts, 71 per cent expected the central bank will maintain the interest rate on the one-year medium-term lending facility (MLF) loans on February 18. The remaining participants predicted a slight interest rate cut.

Market participants believe that China is trying to support the economy while also managing deflationary pressure. Persistent deflation calls for more stimulus, but aggressive easing could lead to currency depreciation and capital outflows.

Investors are now expecting the U.S. Federal Reserve to delay monetary easing, which could limit Beijing’s easing efforts due to wide yield differentials between the two economies.

“We are not of the view that the PBOC will implement an MLF rate cut after the week-long holiday,” said Samuel Tse, economist at DBS. “The policymakers are awaiting the first cut from the Fed to maintain a stable yuan exchange rate.”