China unlikely to cut major policy rate amid inflation, yuan pressure as ‘risk versus reward doesn’t seem attractive’

People’s Bank of China (PBOC) is set to leave the rate on its one-year policy loans – the medium-term lending facility (MLF) – steady at 2.5 per cent

Calls are mounting for Beijing to do more for the economy as consumer prices fall, but concerns about yuan volatility are seen to have tied the PBOC’s hands

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The People’s Bank of China (PBOC) will leave the rate on its one-year policy loans – called the medium-term lending facility (MLF) – steady at 2.5 per cent as soon as Sunday, according to the median estimate in a Bloomberg survey of analysts. Photo: Bloomberg

Published: 12:00pm, 16 Feb 2024

China’s central bank is poised to keep cash conditions and monetary policy broadly stable as policymakers focus on a weakening currency.

The People’s Bank of China (PBOC) will leave the rate on its one-year policy loans – called the medium-term lending facility (MLF) – steady at 2.5 per cent as soon as Sunday, according to the median estimate in a Bloomberg survey of analysts.

Most of the analysts see either a small increase in the MLF issuance, or little changed from the loans maturing this month. Some 499 billion yuan (US$69.8 billion) worth of loans are due to expire.

The PBOC is expected to hold its liquidity operations on the first working day after the Lunar New Year holiday ends, which would be Sunday.

The risk versus reward of a MLF cut now doesn’t seem attractive.

Becky Liu

While calls are mounting for Chinese authorities to do more for the economy as consumer prices fall at the fastest pace since 2009, concerns about yuan volatility have tied the PBOC’s hands.

The central bank last month disappointed investors expecting the first cut in MLF since August.

Policymakers later announced a bigger-than-expected reduction in the reserve requirement ratio (RRR) for banks, one of the several measures to boost sentiment.