PBOC Launches Targeted Medium-term Lending Facilities Following 4th Fed Rate Hike


The Chinese central bank has announced the launch of a new monetary policy instrument as part of efforts to shore up lending to small and micro-enterprises and private enterprise in China.

The People’s Bank of China made the decision to launch targeted medium-term lending facilities (TMLF) (定向中期借贷便利) on 19 December according to a report from its official news outlet, just as the US Fed unveiled a fourth rate hike for 2018.

The new monetary policy instrument will provide long-term stable funds to long-scale banks, in order to expand their credit support to small and micro-enterprises and private enterprises.

According to Huang Yiping (黄益平), vice-head of the Peking University Center for Economic Research and a former member of PBOC’s monetary policy committee, the move will serve to closely tie the release of liquidity by the Chinese central bank and lending by financial institutions, helping to effectively transmit monetary policy adjustments.

“The waters of central bank liquidity [can] achieve the goal of precision irrigation of the real economy,” said Huang.

“The newly created TMLF can effectively supplement the demand for funds from large-scale banks to support small and micro and private enterprise, and the effective usage period of the funds can be as long as 3 years, while the operating interest rate 15 basis points lower than those for MLF.

“These [factors] can help large-scale banks to expand support for the real economy at lower costs and with greater stability, thus forming a banking system which provides multi-vector supports for small and micro and private enterprise.”

Huang Yiping said that PBOC’s decision to launch TMLF and other measures “highlights the activeness and foresight of the central bank of a great nation, and very promptly offsets the potential shock of a drop in US stocks on China’s financial markets, invigorating market confidence and upholding the stability of Chinese financial markets.”

E Yongjian (鄂永健), chief financial analyst with the Bank of Communications Financial Research Center, said that PBOC’s launch of TMLF was extension of other measures to provide targeted support of private enterprise and small and micro-enterprise, which focus on the three areas of longer maturities, low cost and broad coverage.

In addition to TMLF, PBOC has also added in 100 billion yuan in re-lending and re-discount quotas to support the expansion of lending by small and medium-sized enterprises to small and micro and private enterprise, for a total increase of 400 billion yuan in 2018.

“It can be said that nearly all financial institutions have obtained funding support,” said E. “Looking to the future, we can expect monetary policy to maintain rationally ample liquidity, with a focus on continuing precision irrigation and the expansion of targeting support.”