SHANGHAI (Reuters) – China’s central financial institution is extensively anticipated to partially roll over maturing medium-term coverage loans on Monday, whereas preserving borrowing prices unchanged for the seventh month in a row, a Reuters survey confirmed.
Rising home inflationary strain has additional restricted room for coverage manoeuvre to help the financial system slowly recovering from COVID-19 shocks, at a time that different main economies are elevating rates of interest aggressively.
In a ballot of 32 market watchers this week, all respondents forecast no change within the rate of interest on the one-year medium-term lending facility (MLF), which stands at 2.85%.
As a substitute of getting concern about borrowing prices, markets are anxious about whether or not the Individuals’s Financial institution of China (PBOC) would totally renew the 600 billion yuan ($89.04 billion) of such maturing loans on Monday.
Twenty-nine out of the survey members, or 90.6%, mentioned they predicted there can be a partial rollover, whereas the remaining three anticipated the central financial institution to completely lengthen the maturing loans.
Merchants and analysts mentioned the banking system was already flush with money, with interbank cash charges hovering at two-year lows and persistently beneath coverage charges, so there was no need for the central financial institution to inject funds.
“Given the flush market liquidity, a rollover quantity at or above 400 billion yuan shall be seen as supportive,” mentioned Frances Cheung, charges strategist at OCBC Financial institution in Singapore, noting MLF maturity is heavy this month.
Ming Ming, chief economist at CITIC Securities, mentioned such low cost funding prices additionally inspired bond market members to construct up leverage.
“Together with dangers of a rebound in structural inflation, the central financial institution is anticipated to information market prices larger and near the coverage charges and will end in a partial MLF rollover in August,” Ming mentioned.
The PBOC reiterated it might step up the implementation of its prudent financial coverage and preserve liquidity moderately ample, whereas carefully monitoring home and exterior inflation modifications, it mentioned in its second-quarter financial coverage report.
“There may be nonetheless restricted room for reserve requirement ratio (RRR) cuts in This autumn as maturities of one-year MLF surge however with ample liquidity weighing on interbank market charges, the PBOC may additionally cut back on long run liquidity injection,” mentioned Liu Peiqian, chief China economist at NatWest.
Liu mentioned she had revised her opinion and now anticipated no extra benchmark charge cuts this 12 months.
The MLF charge now acts as a information for the lending benchmark, mortgage prime charge (LPR), which is due for launch on Aug. 22.
($1 = 6.7382 )