The People’s Bank of China (PBOC) maintained its key policy rates unchanged in its latest announcement on June 17, 2024.
The People’s Bank of China (PBOC), China’s central bank maintains its key policy rates unchanged amidst concerns over narrowing bank profit margins and a weakening Yuan.
The PBOC kept the medium-term lending facility (MLF) rate at 2.50%, in line with market expectations. This decision indicates limited room for easing monetary policy due to internal and external economic pressures. And 7-day reverse repo rate also Unchanged at 1.80%.
The central bank injected liquidity into the banking system through reverse repos and the MLF to ensure adequate funds for financial institutions.
PBOC’s reasons for holding rates steady:
Concerns over weakening Yuan: The Chinese currency has depreciated against the US dollar, and further easing could exacerbate this trend.
Narrowing bank profit margins: Lowering rates could put additional pressure on banks’ profitability.
Limited room for maneuver: While China has room to lower rates, its ability to adjust monetary policy is constrained by factors like slow government bond issuance and weak private sector credit demand.
The unchanged MLF rate suggests that the Loan Prime Rate (LPR), a benchmark for lending rates, will likely remain the same in the upcoming monthly fixing.