On Monday, China’s central bank pumped much money into the financial system through medium-range loans. This action is seen to bolster the economy, although the loan rates remain the same.
Reasons for the Infusion of Medium-Range Loans to Cushion the Economic Slump in China
More accommodative policies were required to counteract the recent economic downturn in China. Current financial data indicates that the economy has taken a hit due to a combination of widespread outbreaks of the Delta variety of COVID 19 across the country; there were also torrential rainfalls that led to flooding and a general weakening of the China’s economic growth momentum.
Peoples’ Bank of China Offers MLF Credits to Strengthen Banks
The PBOC fixed the rate on a 12 months medium-range lending facility (MLF) loan, which amounted to 600 billion yuan to chosen banking institutions at 2.95%.
As stated by the central bank, this aims to completely satisfy financial sectors’ cash flow needs while keeping fund conditions reasonably sufficient. Also, it says that a decrease in the reserve requirement ratio last month allows the banking sectors to use some of the cash to repay the MLF loans due this month.
Following the PBOC’s recent move to let banks pass on reduced funding costs to customers, OCBC Bank’s Frances Cheung believes that a reserve ratio reduction is unlikely given the upcoming high MLF maturity profile in November and December.
Several bond dealers claimed the MLF credit infusion was more significant than anticipated. Reuters estimates that 3.05 trillion yuan worth of MLF loans will end in the fourth quarter of this year.
On Friday, China is expected to release its August lending benchmark loan prime rate (LPR) based on the MLF rate.
The Yuan Will Benefit From the Strengthening of the Economy
The yuan is set to benefit massively from china’s economic strengthening. We can therefore expect a rise in the yuan as these policies are being carried out.
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