Will The MLF Rate Be Cut Today?

CNY100bn of MLF funds will mature today, with the PBoC set to roll over the maturing amount, at a minimum.

• PBoC watchers are relatively evenly split when it comes to the prospect of a cut to the rate applied to today’s 1-Year MLF operations, although calls for cuts have become more widespread given that the latest round of localised COVID restrictions in China are set to weigh on economic growth. A rate cut is now the consensus view, with 9 of the 17 surveyed by BBG looking for a 10bp cut to 2.75%, while one looks for a 5bp cut to 2.80%. A reminder that the rate was last cut in January, as part of a wider suite of PBoC easing (such a move acts as a pre-cursor to LPR cuts). January’s cut was 10bp in size and was the first move in the rate since the COVID-related easing in early ’20.
• Note that Chinese credit data for the month of February (released last week) missed expectations, with subsequent reports in Chinse state-run media outlets flagging analyst’s comments re: the potential for a RRR & interest rate cuts from the PBoC. The softer than expected credit data also opens the way for a net injection when it comes to today’s MLF operations.
• Ultimately, China’s ’22 GDP growth target of around 5.5% is also seen as challenging, and with the U.S. Federal Reserve set to embark on its latest tightening cycle later this week, the PBoC’s window for action could be closing. That, coupled with the latest string of COVID outbreaks, could force the PBoC’s hand today.