MNI BRIEF: PBOC Leaves Benchmark Rate Unchanged For 12th Month

China's central bank left its key loan rate unchanged on Tuesday for the 12th straight month as it maintains a neutral policy stance amid rising inflation and a record-high leverage ratio.

The Loan Prime Rate, the benchmark to set companies' cost of borrowing, remains at 3.85% for the one-year maturity and 4.65% for five-years. The move was expected as the PBOC had left the Medium-Term Lending Facility rate at 2.95% on April 15. The LPR is linked to the one-year MLF, which is viewed as being closer to market rates.

The PBOC has remained moderate in its daily open market operations since March 1, with small CNY10 billion injections in most days. It has drained a total of CNY60 billion liquidity from the inter-bank market via OMOs since March 1 and has mopped up CNY6.1 billion via MLF this month.

Bond traders told MNI that the central bank would increase the liquidity injection later this month due to the government bond issues and corporate tax payments, but is likely to carefully control the pace of injections over concerns around inflation and debt.

Since the previous LPR reform in August 2019, the PBOC has cut 46 bps off the one-year LPR and 20 bps off the five-year. In April 2020, after seeing a 6.8% contraction in Q1 GDP, the PBOC cut the one-year LPR by 20 bps and the five-year by 10 bps, the biggest cuts since the LPR mechanism reform.