China’s central bank, the People’s Bank of China (PBOC), has chosen to uphold stability in its monetary policy by keeping a key policy rate unchanged on Sunday.
The decision to maintain the rate on one-year medium-term lending facility (MLF) loans at 2.50 per cent was in line with expectations, given the uncertainties surrounding the Federal Reserve’s timetable for easing, which constrains Beijing’s response.
With around $69 billion worth of MLF loans due to expire this month, the PBOC’s decision resulted in a net injection of fresh funds into the banking system. This move underscores the delicate balance Beijing must strike in bolstering its economy amid persistent deflationary pressures.
The PBOC’s choice to keep the MLF rate steady comes against a backdrop of increasing pressure for further stimulus measures. However, any aggressive monetary actions risk reviving downward pressure on the Chinese currency and capital outflows.
Despite some market observers anticipating additional easing measures in the near future, the central bank’s preference for stability remains evident.
According to a Reuters report, Chang Wei Liang, FX & credit strategist at DBS, suggests that policymakers are focused on stabilizing the yuan and limiting negative rate differentials with the US dollar.
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