Shanghai, March 15 (BNA): China’s central bank kept some of its policy rates unchanged in a liquidity operation on Tuesday, thwarting expectations for a cut, although investors believe that policy makers may resume monetary easing soon to support a quiet economy.
The surprise decision comes a day before the US Federal Reserve is expected to make its first rate hike in three years, and analysts say Beijing may want to avoid widening policy divergence for now, Reuters reports.
The People’s Bank of China (PBOC) said it will keep the interest rate on loans worth 200 billion yuan ($31.44 billion) from its Medium Term Lending Facility (MLF) for some financial institutions unchanged at 2.85% from the previous operation.
The operation resulted in a net injection of 100 billion yuan in new money, replacing the 100 billion yuan set to mature on Tuesday. The People’s Bank of China attributed the move to “reasonably maintaining sufficient liquidity in the banking system,” according to an online statement.
Most traders and analysts in a Reuters poll expected a decline in the MLF rate for a year. Read more
The People’s Bank of China avoided adjusting key interest rates ahead of the Federal Reserve’s monetary policy meeting, as the US central bank is widely expected to raise interest rates, said Ken Cheong, chief Asian currency strategist at Mizuho Bank.
“But the People’s Bank of China will ease monetary policy further by cutting political interest rates in order to reach the government’s annual growth target of about 5.5%,” Cheung said.
The People’s Bank of China (PBOC) is expected to cut the interest rate on the multilateral fund in April when China reports its growth in the first quarter.
Major global central banks including the United States, Britain and Japan are due to meet this week, with most of them set to shift to a hawkish stance on monetary policy. The difference in China’s policy may lead to capital outflow risks.
Marco Sun, chief financial markets analyst at MUFG, has also argued that lowering the MLF rate may not necessarily lead to the desired improvement in credit demand.
Sun said the People’s Bank of China (PBOC) may want to wait to see the effects of its January cut in key interest rates before additional easing, adding that he still sees the possibility of banks cutting the benchmark loan rate (LPR) this month.
The central bank also injected 10 billion yuan through seven-day reverse repo agreements to offset the same amount of those loans maturing on the same day, while keeping borrowing costs unchanged at 2.1%, according to the statement.
MI