©Reuters. A man wearing a mask walks past the headquarters of the People’s Bank of China, the central bank, in Beijing, China, as the country is hit by an epidemic of the new coronavirus, February 3, 2020. REUTERS/Jason Lee/ file Photo
SHANGHAI/SINGAPORE (Reuters) – China’s central bank left its key rate unchanged as expected on Sunday, rolling over maturing medium-term loans, with uncertainties over the timing of easing by the Federal Reserve limiting room for maneuver of Beijing on monetary policy.
Beijing is performing a delicate balancing act to support the economy at a time when signs of persistent deflationary pressures require further stimulus measures. But any aggressive monetary movement risks reviving depreciation pressure on the Chinese currency and capital outflows.
With investors now postponing the start of Fed monetary easing until at least mid-year from March, following the latest US data, traders and analysts expect China may hold off on implementing stimulus imminent.
The People’s Bank of China (PBOC) said it will keep the rate on 500 billion yuan ($69.51 billion) of one-year medium-term loans to some financial institutions unchanged at 2.50%.
Sunday’s operation was intended to “keep banking system liquidity reasonably ample,” the central bank said in an online statement.
In a Reuters poll of 31 market watchers, 22, or 71%, of all respondents expected the central bank to keep the cost of funding one-year MLF loans unchanged from Feb. 18.
With 499 billion yuan of MLF loans set to mature this month, the deal resulted in a net injection of 1 billion yuan of new funds into the banking system.
Chang Wei Liang, FX and credit strategist at DBS, said the stable MLF rate stems from “policymakers’ preference to peg the yuan and limit negative rate differentials with the US dollar.”
However, some investors and market watchers have increased their bets on further monetary easing measures in the coming months to support the world’s second-largest economy after the central bank made a deep cut to bank reserves earlier this month .
The PBOC said in its latest monetary policy implementation report that it will keep policy flexible to stimulate domestic demand while maintaining price stability.
“We continue to expect two rounds of rate cuts in the first and second quarters, with 15 basis points each for both open market operations (OMO) and MLF rates,” Ting Lu, China’s chief economist, said in a note by Nomura. loan operation.
He added that the latest round of easing measures, including an early cut in the reserve requirement ratio (RRR), “failed to stabilize market sentiment.”
The central bank-backed Financial News reported on Sunday, citing market watchers, that the benchmark lending rate (LPR) could fall in the coming days, with a five-year tenor cut more likely.
“The lowering of the five-year LPR will help stabilize confidence, promote investment and consumption, and will also help support the stable and healthy developments of the real estate market,” the newspaper said on its official WeChat account soon after the decision on MLF rate.
Most new and outstanding loans in China are based on the one-year LPR rate, while the five-year rate influences the price of mortgages. The monthly setting of the LPR is scheduled for February 20th.
($1 = 7.1929)