China central bank cuts medium-term loan rate

SHANGHAI (Reuters) -China’s central bank lowered the cost of its medium-term loans to banks on Wednesday in a move consistent with broad policy easing measures announced a day earlier to shore up a flailing economy.

The People’s Bank of China (PBOC) said it cut the rate on 300 billion yuan ($42.66 billion) worth of one-year medium-term lending facility (MLF) loans to some financial institutions to 2.00% from 2.30%.

The bid rates in Wednesday’s operation ranged from 1.90% to 2.30%, and the total balance of MLF loans now stands at 6.878 trillion yuan, the central bank said in an online statement.

A batch of 591 billion yuan worth of MLF loans expired this month.

On Tuesday, Beijing unveiled its biggest stimulus since the pandemic to pull the economy out of its deflationary funk and back towards the government’s growth target.

“The partial rollover did not come as a surprise especially with the planned reserve requirement ratio (RRR) cut,” said Frances Cheung, head of FX and rates strategy at OCBC Bank, referring to the central bank’s planned 50-basis-point cut to the amount of cash that banks must hold as reserves.

“Looking ahead, the window of opportunity is there for another RRR cut before year end, given heavy MLF maturities in Q4.”

Cheung said the PBOC’s disclosure of the highest and lowest bids reflected “the intention to make this facility more driven by demand and to fade the role of the MLF rate as a policy guidance.”

Also, on the same day the PBOC injected another 196.5 billion yuan through 14-day reverse repos and left the interest rate unchanged at 1.85% from the previous operation.

($1 = 7.0318 Chinese yuan)