China’s central bank gave 600 billion yuan to the financial system through medium-term loans to combat the economic slowdown
PBOC kept the rate of one-year medium-term lending facility loans worth 600 billion yuan to some financial institutions at 2.95 percent from previous operations.
The central bank said the loan operation aims to “fully meet the liquidity demand of financial institutions” and to keep funding conditions “reasonably adequate”.
According to analysts, economic growth has slowed due to expanding epidemics of the Delta variant, torrential rains, and flooding across the country. Analysts claim that it requires more easing measures to soften the slowdown.
The central bank said Monday’s operation is for rolling over 700 billion yuan of MLF loans due on Tuesday.
The bank is expected to fix its benchmark lending prime rate in August, which is loosely pegged to the medium-term borrowing rate on Friday.
Experts’ Opinions
Frances Cheung, interest rate strategist at OCBC Bank said that “PBOC may choose to allow banks to pass lower funding costs to their customers rather than directly deduct the interest. Therefore, a reserve ratio reduction cannot be ignored due to the intense medium-term borrowing maturity profile that continues especially in the next 4 months.”
“Unless the prudent monetary policy stance changes, the MLF rate will not be easily adjusted,” said Wang Yifeng, senior analyst at Everbright Securities. He also added that ‘’lowering the cost of medium-term borrowing could encourage financial institutions to finance leveraged positions.’’
