SHANGHAI -China’s central bank partially rolled over maturing medium-term loans on Wednesday as it sought to boost liquidity, while market participants expected the central bank to implement more easing measures to help arrest the economic slowdown.
The People’s Bank of China (PBOC) said it was keeping the rate on 500 billion yuan ($78.5 billion) worth of one-year medium-term lending facility (MLF) loans steady for the 20th straight month in December at 2.95%.
An earlier decision by the PBOC to lower banks’ reserve requirement ratio (RRR) also came into effect on Wednesday, freeing up 1.2 trillion yuan worth of long-term funds, the central bank said in an online statement.
That also helped offset some of the 950 billion yuan worth of MLF loans due to mature on Wednesday.
“The larger-than-expected injection confirms the PBOC’s vow of ample liquidity into next year,” said Xing Zhaopeng, senior China strategist at ANZ.
“The unmoved rate indicates the prudent tone of monetary policy. However, in the counter-cyclical setting, the authorities will be open to a rate cut if necessary. We believe the PBOC will be in a wait-and-see mode going forward.”
Many market analysts said they see a chance of the central bank marginally reducing the lending benchmark Loan Prime Rate (LPR) due next Monday, despite having kept the MLF rate steady, in a bid to counter the economic slowdown.
The PBOC may reduce the one-year LPR rate by 5 basis points, Goldman Sachs analysts said last week.
A slew of recent economic indicators, including retail sales and investment growth, have pointed to a slowing economy. A recent regulatory clampdown on the tech sector has also dampened sentiment, while new curbs to fight rising COVID-19 cases could pile additional downward pressure.
Marco Sun, chief financial markets analyst at MUFG Bank, said increasing headwinds facing the economy could prompt authorities to ease monetary policy further in the first half of 2022.
“If subsequent domestic macro situations require, the PBOC could deliver another one to two broad-based RRR cuts,” Sun said. “(But) we don’t rule out a LPR cut this month.”
($1 = 6.3671 yuan)
(Reporting by Winni Zhou and Andrew Galbraith; Editing by Tom Hogue, Lincoln Feast and Ana Nicolaci da Costa)