China: PBOC may cut the MLF rate – ANZ

The People’s Bank of China (PBOC) is expected to cut the one-year medium-term lending facility (MLF) rate after slashing its loan prime rate (LPR) in December, analysts at Australia and New Zealand (ANZ) banking group noted.

Key quotes

“China’s policymakers proposed to “optimise the central bank policy rate system” at the People’s Bank of China (PBoC)’s Q4 monetary policy committee meeting (MPC) in December 2021. We believe this signals the possibility of a 10bp cut in the 1Y medium-term lending facility (MLF) rate. “

“The cut in the loan prime rate (LPR) in December shows that the market has been ahead of the policy decision already.”

“The 1Y MLF, which is currently at 2.95%, seems too high to be a medium-term rate pivot for bank asset pricing, because China’s new asset management rules have brought about structural changes to banks’ liabilities, in our view.”

“Furthermore, China’s policy stance has shifted to growth stabilization. The optimization of the policy rate system will help to transmit liquidity that has accumulated in the banking system to the real economy.”