SHANGHAI/SINGAPORE- China’s central bank on Monday left a key policy interest rate unchanged as widely expected when rolling over maturing medium-term loans, and drained some cash from the banking system through the bond instrument.
Keeping the medium-term lending facility (MLF) rate steady underscores the central bank’s intention to maintain currency stability amid a shaky economic recovery and push back on market expectations around the timing of a first US Federal Reserve interest rate cut this year.
Cooling inflation, slowing credit expansion and shrinking exports in March all pointed to the need for more stimulus to revive momentum in the world’s second-largest economy, analysts said.
But a weakening yuan on the back of a resurgent US dollar and yield differentials with other major economies constrained authorities’ monetary-easing efforts.
In addition, the MLF rate serves as a guide to loan prime rates (LPRs) and markets mostly use the MLF rate as a precursor to change in lending benchmarks.
The People’s Bank of China (PBOC) said it was leaving the rate on 100 billion yuan ($13.82 billion) worth of one-year MLF loans to some financial institutions at 2.50 percent .
In a Reuters poll of 31 market watchers, all respondents expected the bank to leave the rate unchanged.
With 170 billion yuan worth of MLF loans set to expire this month, the operation resulted in a net 70 billion yuan of fund withdrawal from the banking system.
