China likely to maintain medium-term interest rates despite weak economy

People wearing face masks walk past the headquarters of China’s central bank, the People’s Bank of China (PBOC), on April 4, 2020. REUTERS/Tingshu Wang/File Photo/File Photo

SHANGHAI (Reuters) – China’s central bank is widely expected to pause its monetary easing efforts this month and keep its medium-term policy rate unchanged, according to a Reuters poll. Outflow of Chinese yuan and risk capital.

The People’s Bank of China (PBOC) surprised markets in August by cutting key interest rates, reviving credit demand and supporting an economic slowdown hit by the COVID-19 shock.

Data since then show further loss of momentum, with extended lockdowns weighing on spending and confidence, and the real estate market slipping into a deep recession. Some analysts say the economy could remain weak at least through the end of the year.read more

But policy divergence with most other major economies, which have been aggressively raising interest rates to combat high inflation, has put pressure on the yuan, pushing it down to around the psychologically important 7 mark in mid-August. It has since fallen more than 3% against the dollar.

In a poll of 28 market watchers this week, 27 respondents said they expect the one-year medium-term lending facility (MLF) interest rate to rise to 2.75% on Thursday, when the PBOC is expected to surpass 600 billion yuan. ($86.14 billion) worth of such loans.

Of those, 17 expected the PBOC to partially renew maturing loans, while the remaining 10 expected a full rollover.

One of the survey participants predicted a slight decline in interest rates.

“We do not expect the People’s Bank of China (PBOC) to make any further revisions to the one-year medium-term lending rate (this week) as the yuan has come under recent weakening pressure,” ING analysts wrote in a report. ‘ said.

Some traders and analysts said the authorities may postpone easing for the time being, but the heavy maturities of MLFs totaling 2.6 trillion yuan by the end of the year could see some liquidity later this year. I expect that sex will be injected.

“While we don’t see any imminent urgency to cut rates, we do expect further RRR cuts in the coming months,” said Tommy Shih, head of Greater China research at OCBC Bank. .

Xie, along with some market traders, pointed out that China’s inflationary pressures are very low by global standards, giving the PBOC more room to manipulate monetary policy if necessary.

“We continue to see downside risks to the economic outlook as policymakers have added only modest stimulus,” said Win Singh, global head of currency strategy at Brown Brothers Harriman. .

($1 = 6.9656 Chinese Yuan)

Reporting by Li Hongwei and Brenda Goh, written by Winnie Chow.Edited by Kim Coghill

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