China Keeps MLF Rate Unchanged Unexpectedly

(RTTNews) - China's central bank maintained the rate on medium-term lending facility unchanged unexpectedly on Monday as any reduction would add downward pressure on the renminbi.

The People's Bank of China added CNY 995 billion via the MLF, which is set to mature in one year.

The interest rate was 2.5 percent, unchanged from the previous operation.

Markets widely expected a reduction in the MLF rate.

The central bank also conducted CNY 89 billion of seven-day reverse repo operations at an interest rate of 1.8 percent.

The latest operation resulted in a net injection of CNY 216 billion into the banking system with CNY 779 billion of MLF loans to expire this month. The operations were intended to keep reasonable and ample liquidity in the banking system, the PBoC said.

The major factor that is holding the PBoC back was lingering concerns about the renminbi, economists at Capital Economics said.

However, this roadblock should disappear over the coming months as US yields continue to fall, they added.

Policy rate cuts and reductions to RRR are likely before long as the case for more monetary easing is still strong both to support the economy and limit the downside risks to inflation, economists said. Even though PBoC officials suggested that they are willing to use various monetary policy tools to support the economy, the need for approval from the State Council and ultimately, the Party leadership may be resulting in delays, they observed.

Last week, the World Bank said the global growth will slow for the third year in a row, to 2.4 percent in this year from 2.6 percent last year.

The National Bureau of Statistics is set to publish China's GDP data on January 17.