(Bloomberg) — China kept key interest rates on hold — a move widely expected by economists — as it tries to prepare ahead of a possible escalation in trade tensions with the United States.
Most read from Bloomberg
On Wednesday, the People’s Bank of China issued a statement saying it would keep the one-year medium-term lending facility interest rate stable at 2%. Nine of 10 economists polled by Bloomberg predicted no change. The last rate cut was in September, by 30 basis points.
Earlier this month, policymakers pledged to adopt “moderately loose” monetary policy – the first shift in stance in about 14 years – along with “more proactive” fiscal tools to boost the economy. But so far they have not announced any specific stimulus measures, reflecting their patience before the United States imposes tariffs that President-elect Donald Trump had earlier threatened.
Still, markets have ramped up bets on a sharp rate cut next year, sending Chinese sovereign bond yields to record lows.
On Wednesday, the People’s Bank of China provided 300 billion yuan ($41 billion) of policy loans through the MLF, compared with a December maturity of 1.45 trillion yuan. This would be the fifth consecutive month that the central bank has used the facility to withdraw cash on a net basis.
The cash shortage may be offset by the supply of liquidity provided by the People’s Bank of China through other instruments. Last month, the central bank injected a net $1 trillion in funds to purchase government bonds through so-called direct reverse repurchase agreements.
These operations reflect China’s goal of gradually downplaying the role of the MLF and prioritizing short-term interest rates as a policy anchor.
Most read from Bloomberg Businessweek
©2024 Bloomberg
