China’s central bank retained some unchanged policy rates on Tuesday. Although investors believe policymakers could resume short-term spending to support a slower economy. The shocking decision comes a day before the US Federal Reserve is expected to bring the first interest rate hike in three years and analysts say Beijing may want to avoid a policy extension at the moment.
The People’s Bank of China (PBOC) has stated that it will keep rate at a rate of 200 billion yuan ($ 31.44 billion) in other financial institutions unchanged at 2.85% over the previous operation. The operation resulted in the surplus of 100 billion yuan in new currency, instead of 100 billion yuan due to maturity on Tuesday. The PBOC has stated that the move to “maintaining banking system liquidity reasonably ample”, according to an online statement. The majority of retailers and analysts in a Reuters survey reported a one-year MLF reduction of one.
Ken Cheung, chief executive of the Asian FX Strategist at Mizuho Bank, said the PBOC had avoided adjusting key interest rates ahead of the Fed policy meeting, at which the US central bank is widely expected to raise interest rates. “But the PBOC will also lower its monetary policy by lowering interest rates to meet the government’s target of about 5.5% growth,” Cheung said. He expects the PBOC to cut MLF rate in April when China reports its first quarter growth.
Also, lowering the MLF level may not really bring the desired development to the credit demand, Marco Sun, MUFG’s chief financial analyst, argued. The central bank also deposited 10 billion yuan through a seven-day backlog to repay the same loan amount required on the same day, while borrowing costs remained unchanged at 2.1%, according to the statement.
