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CHINA’S central bank announced it will inject one-year liquidity to domestic lenders on Aug 26, a rare delay that comes amid a broad overhaul of its policy toolkit.
The People’s Bank of China (PBOC) will renew the medium-term lending facility (MLF) funds maturing Aug 15 later this month, it said on Thursday (Aug 15).
The bank explained that it instead provided 577.7 billion yuan (S$106 billion) of the seven-day reverse repo to offset the impact of maturing MLF funds and other factors affecting market liquidity, such as the issuance of government bonds.
Bloomberg News previously reported the central bank was considering a date change, as officials aim to gradually de-link the MLF from the benchmark lending rates, known as the loan prime rates published on the 20th of each month.
The PBOC in recent weeks began an overhaul that could allow it to operate more such as global peers and influence market borrowing costs more effectively. It’s been downplaying the role of the MLF as a key rate while transitioning to using the seven-day reverse repurchase notes as the main policy lever to deliver a clearer signal.
The MLF rate was last lowered on Jul 25 by the most since 2020, the latest step in a string of rate reductions to improve the economy’s faltering momentum.
Banks have had little appetite for the MLF funds in recent months, as a decline in market rates meant it became cheaper for them to borrow from each other than from the PBOC. The discrepancy strengthens the case for the central bank to lower the MLF more than the short-term rate, according to analysts. BLOOMBERG
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