PBC holds medium-term rate flat, conducive to flexible monetary policy
China’s central bank on Monday added 995 billion yuan ($138.84 billion) worth of oneyear medium-term lending facility (MLF) loans to some financial institutions, but kept the policy rate unchanged. Although it was beyond market expectations, analysts said reserve requirement ratio (RRR) and interest rate cuts and other structural tools remain in the central bank’s toolkit to ensure a sustained economic recovery in 2024.
In order to maintain reasonable and ample liquidity in the banking system, the People’s Bank of China (PBC) conducted 89 billion yuan of seven-day reverse repos at an interest rate of 1.8 percent.
In addition, a total of 995 billion yuan was injected into the market via the MLF, which will mature in one year at an interest rate of 2.5 percent, unchanged from the previous operation, according to a statement on the central bank’s website on Monday.
The central bank’s move was slightly beyond market expectations, but will be conducive to flexible and prudent monetary policy amid the growing external challenges of macro-policy uncertainties and geopolitical tensions, Zhou Maohua, a macroeconomic analyst at Everbright Bank, told the Global Times on Monday.
China’s economy has extended its recovery, and new loans grew by an appropriate amount in 2023, which showed that market interest rates are in a reasonable range, Zhou said.
China’s yuan-denominated loans rose by 22.75 trillion yuan in 2023, a year-on-year increase of 1.31 trillion yuan.
“With added liquidity in the banking system, the central bank aims to guide financial institutions to step up support for weak economic links and key sectors, which will bolster market confidence in the economic recovery,” he said.
RRR and interest rate cuts and other structural tools are still possible options in 2024, Zhou said, noting that more policies are needed to release domestic demand and bolster the real economy.
Yang Delong, chief economist at Shenzhen-based First Seafront Fund Management Co, told the Global Times on Monday that China’s monetary policy will remain relatively relaxed in 2024 so as to maintain low interest rates, ample liquidity and credit growth to support the development of enterprises, especially the private sector.