PBOC asks banks about MLF loan application, sources say as speculation grows
SHANGHAI, July 14 (Reuters) – The People’s Bank of China (PBOC) asked commercial lenders about the demand for loans under the Medium-Term Lending Facility (MLF), ahead of the announcement of a liquidity transaction Thursday, which is closely watched for any sign of changing its political stance, said two market sources with first-hand knowledge of the matter on Wednesday.
A batch of one-year MLF loans worth 400 billion yuan ($ 61.81 billion) is due to mature Thursday. China last week surprised markets by reducing bank reserve requirements and said some of the money released would be used to pay down debt.
The PBOC asked some commercial banks on Monday about the expected demand for more MLF loans, the sources said.
The PBOC said on Friday it would reduce the amount of liquidity banks are required to hold as reserves, freeing up about 1 trillion yuan ($ 154.58 billion) in long-term liquidity from July 15 to support the recovery. China’s economy after COVID, which is starting to lose some steam.
Typically, the PBOC has rolled over and often supplemented maturing MLF loans to avoid a tightening of liquidity in the banking system. At the same time, he announces interest rates on new loans, sending a signal to financial markets of his political intentions.
Most analysts don’t expect an imminent MLF rate cut, but speculation is mounting that China could cut policy rates as early as next week, especially if Thursday’s economic data turns out to be weaker than expected . Read more
“(The markets) thought there would be no renewal of the MLF after the RRR cut, but (the central bank) still asked about demand on Monday,” one of the sources said. .
It was not clear how much money from the RRR reduction would be used to repay maturing MLF loans.
The sources noted that such MLF request queries do not guarantee MLF operations.
Analysts and traders said if the PBOC plans to inject more liquidity through the liquidity tool on Thursday, money market rates and bond yields are likely to fall further.
Compared to the low long-term cost of funds from RRR cuts, MLF loans are rather expensive, with one-year interest rates on this debt at 2.95%. A total of 4.15 trillion yuan in MLF loans are expected to expire in the second half of this year.
Market speculation is mounting as to whether the reduction in the PBOC’s RRR was a preventative and one-time measure to lower corporate borrowing costs and ensure abundant liquidity, or whether it signals a possible shift towards a focus. policy easier as economic growth hits a downturn. Until last week, investors believed he was slowly reducing emergency stimulus measures in the event of a pandemic. Read more
According to the latest Reuters poll released on Tuesday, the PBOC is expected to cut the RRR by another 50 basis points in the fourth quarter, as pressure on the economy persists while consumer inflation eases. Read more
Sun Guofeng, head of the PBOC’s monetary policy department, told media on Tuesday that China will maintain normal monetary policy and prioritize stability and focus on domestic conditions. Read more
($ 1 = 6.4690 Chinese yuan)
Report from the Shanghai and Beijing press rooms; Editing by Kim Coghill
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