© Reuters. FILE PHOTO: Paramilitary police officers stand guard in front of the headquarters of the People's Bank of China, the central bank (PBOC), in Beijing, China September 30, 2022. REUTERS/Tingshu Wang
SHANGHAI (Reuters) – China's central bank will inject more liquidity when rolling out medium-term policy loans maturing for the fourth straight month on Wednesday, while keeping interest rates unchanged, to support the economy, a Reuters survey showed.
The People's Bank of China (PBOC) will continue to maintain sufficient long-term funds, said traders and analysts, adding that the target for moderate economic growth this year shows policymakers are comfortable with the pace of recovery.
China ended more than three years of a strict zero-COVID policy involving city-wide lockdowns and extensive quarantines in December. The reopening of the economy has boosted consumption and business activity, raising prospects for a quicker recovery that reduces the likelihood of major monetary easing.
In a poll of 28 market watchers conducted this week, all participants expected the PBOC to keep its one-year medium-term loan facility (MLF) rate unchanged at 2.75%.
Among them, 20 or 71% of all respondents expect the central bank to inject fresh funds beyond the maturity amount, while another eight traders and analysts expect only a full rollover. This month, 200 billion yuan ($29.10 billion) of the debt is due.
“A very large MLF rollover of 300 to 400 billion yuan may be required as market liquidity demand will remain high due to the need for negotiable certificates of deposit (NCD) refunds and ongoing supply of local government bonds (LGBs),” said Frances Cheung , interest rate strategist at OCBC Bank.
China set this year's economic growth target of around 5% at the annual session of the National People's Congress (NPC). Targets were at the lower end of expectations, as policy sources recently told Reuters a range as high as 6% could be set. This is also below last year's target of around 5.5%.
“Policy signals from the PBOC and NPC point to a possible rate cut for the MLF this year,” said Tommy Wu, senior China economist at Commerzbank (ETR:).
“This is because policy makers may be expecting a relatively good start to the economy this year and less policy support is needed. This is especially given the conservative and modest ‘around 5%' target for 2023.”
Some investors also noted that China's monetary policy should remain stable after Beijing was surprised by keeping its central bank governor and finance minister in their posts, prioritizing continuity due to looming economic challenges at home and abroad.
The MLF rate serves as a guide to the prime lending rate (LPR) and the market largely uses the mid-term policy rate as a precursor for any lending benchmark changes. The monthly LPR determination is due next Monday.
($1 = 6.8721 )