SHANGHAI/SINGAPORE, March 15 (Reuters) – China’s central bank left the policy rate unchanged and withdrew cash from a medium-term lending operation, as authorities continued to prioritize currency stability amid of uncertainty over the timing of interest rate cuts planned by the US Federal Reserve.
The Fed’s historic monetary tightening has strengthened the dollar and pressured the yuan in recent years. A rate cut before the Federal Reserve or other major central banks do so would widen yield spreads, which could put more pressure on the local currency.
The People’s Bank of China said it was keeping the interest rate on 387 billion yuan ($53.8 billion) of one-year medium-term loans (MLF) to some financial institutions unchanged on the 2nd, 50% of the previous operation.
With 481 billion yuan of MLF loans maturing this month, the deal resulted in a net withdrawal of funds from the banking system of 94 billion yuan. It was the first cash withdrawal through this liquidity instrument since November 2022.
The central bank said Friday’s lending operation has “fully met the demand of financial institutions” to keep the banking system’s liquidity reasonably ample, according to an online statement.
“The net cash withdrawal is an obvious signal, echoing the content of the government’s work report on preventing fund idling,” said Xing Zhaopeng, China strategist at ANZ.
“With major commercial banks yet to lower deposit rates again, the chances of another official interest rate cut are low.”
In a Reuters poll of 36 market watchers, 32 – or 89% of all respondents – expected the central bank to leave the MLF’s one-year borrowing costs unchanged.
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China has set an ambitious economic growth target for 2024 of around 5%, promising measures to transform the country’s development model and defuse risks fueled by bankrupt property developers and indebted cities.
People’s Bank of China Governor Pan Gongsheng said last week that the bank would keep the yuan basically stable and sent an expansionary message to the market by saying China had “rich monetary policy tools at its disposal.”
Investors have since increased their bets that authorities will implement further monetary easing measures, including a further reduction in bank reserves, to support the world’s second-largest economy.
The MLF trade “may suggest that a cut in the reserve requirement ratio is coming,” said Frances Cheung, rates strategist at OCBC Bank.
“There may be an intention to replace part of the MLF with the liquidity freed up by a cut to the required reserve ratio. After all, there have been strong indications of those responsible for a cut to the required reserve ratio.”
The central bank also injected 13 billion yuan through seven-day reverse repos while keeping borrowing costs unchanged at 1.80%, it said in a statement.
(1 US dollar = 7.1932 Chinese yuan)
(Reporting by Winni Zhou and Tom Westbrook; edited in Spanish by Benjamín Mejías Valencia)
2024-03-15 10:53:25
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