China refrains from policy rate cut, defying market expectations once again
- People’s Bank of China keeps some 200 billion yuan (US$29.7 billion) worth of one-year MLF loans unchanged
- Economists have said that benign inflation at home, along with the return of capital inflows last month, warranted a cut in the interest rate to support economic growth
China’s central bank refrained from lowering a key policy rate on Wednesday, falling short of market expectations again and missing another window of opportunity on a key policy rate change to cushion the nation’s economic slowdown amid the US’ progressive rate-hike plans.
The People’s Bank of China kept the interest rate of one-year medium-term lending facility (MLF) loans unchanged at 2.85 per cent for the past five months, after the previous cut from 2.95 per cent in January.
Some 200 billion yuan (US$29.7 billion) worth of one-year MLF loans – a key tool used by the central bank to release medium-term liquidity into the interbank market – matured and rolled over on Wednesday. Any rate cut on it would have been viewed as a clear signal to boost the economy.
“China’s monetary policy is now in an observation period when a variety of domestic stabilisation measures are being implemented and the US Federal Reserve plans to have fast monetary tightening. Keeping the MLF rate unchanged will help strike a balance between domestic and external conditions,” said Wang Qing, chief macro analyst with Golden Credit Rating.
“Meanwhile, the current market liquidity is slightly higher than the reasonable ample level. There’s no need to increase the size of the facility,” he added.
The decision came ahead of the US Federal Reserve’s interest rate meeting on Thursday, with the market expecting the Fed to raise interest rates by at least 50 basis points to tame soaring inflation, and with more aggressive moves in the pipeline.