Free Trial

MNI CHINA MONEY WEEK: PBOC Policy Rate Tweaks In Focus

MNI (London)
     LONDON (MNI) - There has been growing speculation surrounding the potential
for the People's Bank of China to cut the rate it applies to its Medium-term
lending facility operations, with the next opportunity coming being presented by
the CNY265bn 1-Year MLFs expiring on Tuesday September 17.
     This would have knock on effects for the Loan Prime Rate (LPR). However,
MNI noted this week that the PBOC may hold back from easing the MLF in order to
hold back ammunition for stimulus later in the year, if needed.
     The PBOC didn't rollover the latest round of maturing MLF earlier this
week, perhaps wary of how the market would perceive such a move on the back off
the latest reserve requirement ratio cut announced last week.
     The initial, system wide round of rate cuts will go into play on Sep 16,
before the next maturity of MLF and before the next LPR fixing (20 Sep) which
could force the LPR rate lower without tweaking the MLF rate.
     It is also worth highlighting that our understanding is that the PBOC is
likely to guide its new prime lending rate lower next week, but it may hold its
medium-term facility rate steady, leaving itself ammunition for further stimulus
if necessary later this year, based on conversations with government advisors.
     While there is room for the PBOC to cut its open market operations rates,
including the MLF and the 7-day repo rate, Zhang Ming, senior fellow at the
Institute of World Economic and Politics under the Chinese Academy of Social
Sciences, told MNI the central bank is likely for the moment to rely on the
recent lowering of RRRs, which allows banks to hold onto to more cash, to reduce
the quotations from 18 designated lenders used to calculate the prime rate.
     The PBOC's reformulation of its interest rate framework last month should
improve transmission to real economy lending, Zhang said.
     Up Next
     It goes without saying that next week's Washington talks will be key in
terms of setting the tone for the ministerial level talks in October.
     On the domestic front, August economic activity and unemployment data will
provide the major points of interest.
     China is enjoying a national public holiday on Friday and returns to the
fray on Monday
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com
--MNI London Bureau; +44 203 865 380; email: anthony.barton@marketnews.com
[TOPICS: MMQPB$,M$A$$$,M$Q$$$,MT$$$$,M$$FI$,MN$FI$,MN$FX$]
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com

To read the full story

Close

Why MNI

MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.