2024.03.1508:25:00UTC+00China Keeps MLF Rate Unchanged; Drains Liquidity

China's central bank decided on Friday to maintain its one-year medium-term lending facility rate, and drained liquidity out of the system for the first time since late 2022.

The People's Bank of China added CNY 387 billion into the financial system via MLF, which is set to mature in a year, at a rate of 2.5 percent, unchanged from the prior operation. Nearly CNY 481 million of MLF will expire this month. The PBoC also conducted a seven-day reverse repo of CNY 13 billion at an interest rate of 1.8 percent.

The MLF acts as a guide to the loan prime rate fixing. With today's unchanged MLF rate, the loan prime rates are likely to be kept unchanged this month.

Last month, the central bank reduced its five-year loan prime rate to a record low 3.95 percent but maintained the one-year LPR at 3.45 percent.

The PBOC remains on a dovish tilt, ING economist Lynn Song said. However, the depreciation pressure on the currency limits room for monetary easing in China before global central banks start to cut rates, the economist noted.

The PBoC is likely to time its rate cuts carefully to support a broader supportive policy push in coming months, Song added. ING economist observed that a rate cut will be more effective in supporting the economy compared to a further RRR cut. Monetary policy easing will likely have to be a part of efforts to reach the about 5 growth target this year, Song noted.

Elsewhere, reports said that house prices continued to decline in February as property market remained under pressure.

The National Bureau of Statistics reportedly said that house prices in four-tier cities namely Beijing, Shanghai, Guangzhou and Shenzhen, decreased 0.3 percent on month in February.