MLF Rates Remain Unchanged for 14th Month Straight, Domestic Analysts Highlight Chinese Central Bank’s Focus on Stability

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The long unchanged rate for the Chinese central bank’s medium-term lending facilities (MLF) attests to it determination to maintain the stability of monetary policy, according to a leading domestic analyst.

On 17 May the People’s Bank of China (PBOC) undertook 100 billion yuan in one-year MLF operations at a rate of 2.95%, with the rate remaining unchanged for the 14th consecutive month.

100 billion yuan in MLF are scheduled to mature in May, and the PBOC’s maintenance of outstanding MLF levels is in line with market expectations.

Wang Qing (王青), chief macro-analyst with Golden Credit Rating International, said to the PBOC’s official news outlet that the MLF extension in May is driven by anticipation of large-scale increases in local government bond issuance in the second quarter, which could put pressure on market liquidity, and has already led to a modest decline in medium-term rates.

With regard the rate for one-term MLF’s remaining unchanged for 14 consecutive months, Wang said that this is a clear indication that Chinese monetary policy will continue to maintain the theme that “the word stability is the priority” (稳字当头).

PBOC has recently conducted 7-day reverse repo operations on a daily basis at an unchanged rate of 2.20%, which means that short-term policy rates are stable, presaging no further shift in MLF rates.

PBOC’s monetary policy execution report for the first quarter of 2021 said that while China’s producer price index (PPI) could rise in the second and third quarters due to gains in international commodities prices, its assessment was that any “incoming inflation risk is controllable overall.”

“From this we can see that at present a reheating in prices and in particular a surge in PPI have already drawn a high level of attention, and in future measures could be unveiled to address supply-demand relations for industrial goods, and restore market balance,” said Wang.

Wang nonetheless sees PBOC maintaining its emphasis on stable monetary policy given its assessment of the “stage-based” nature of rises in industrial goods prices in its monetary policy execution report.

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