The People’s Bank of China maintained the status quo on the medium-term policy rate for a fifth straight month on Wednesday, with analysts saying the US Federal Reserve’s aggressive interest rate increases might be forcing Beijing’s hand.
Beijing has vowed to ramp up stimulus measures as Covid-19 curbs devastate its economy, but it is wary of a growing divergence in monetary policy between China and other major economies triggering a depreciation of the yuan and capital outflows.
PBOC said it was keeping the rate on 200 billion yuan ($29.68 billion) worth of one-year medium-term lending facility (MLF) loans to some financial institutions unchanged at 2.85% from the previous operation.
The PBOC said the cash injection was to “keep banking system liquidity reasonably ample,” according to an online statement. A Reuters poll showed 30 of 31 poll respondents had forecast no change in the interest rate on the one-year MLF rate.
Monetary Easing to Resume
“The PBOC was maintaining the status quo (on the medium-term policy rate) with regard to a more aggressive Fed tightening,” Xing Zhaopeng, senior China strategist at ANZ, said.
But Xing expects the central bank to resume monetary easing by cutting banks’ reserve requirement ratio by 50 basis points in the third quarter of this year.
Fast-changing views in financial markets have opened the door to a larger-than-expected three-quarter-percentage point interest rate increase at the Fed’s policy meeting this week.
The Chinese central bank also said it injected 10 billion yuan through seven-day reverse repos while keeping borrowing costs unchanged at 2.1%.
- Reuters with additional editing by Sean O’Meara