SHANGHAI :China's central bank rolled over maturing medium-term loans on Friday and kept their interest rates unchanged, heightening speculation policymakers might need to ease monetary settings to support the economy amid risks from stagflation.
The People's Bank of China (PBOC) said it has kept the rate on 500 billion yuan (US$77.66 billion) worth of one-year medium-term lending facility (MLF) loans to some financial institutions steady at 2.95per cent.
The cash injection rolled over the same amount of maturing loans, according to the statement, and the PBOC attributed the move to "keep banking system liquidity reasonably ample".
"The result was in line with market expectations," said Xing Zhaopeng, chief China strategist at ANZ.
"The central bank's intention to control the scale of outstanding MLF loans showed an obvious intention to avoid pushing up the cost of bank liabilities," he said.
Xing added that a targeted RRR cut or targeted medium-term lending facility (TMLF) operations remained possible to deal with heavy tax payment, which could reach 1.4 trillion yuan this month.
The PBOC delivered a surprise cut to banks' reserve requirement ratio (RRR) in July, a sign that many investors believed the broad economic recovery might have started losing steam.
Premier Li Keqiang said this week that China has ample tools to cope with economic challenges despite slowing growth, and the government is confident of achieving full-year development goals.
Li said China's major economic indicators are within a reasonable range, although he acknowledged growth in the third quarter had slowed, due to a combination of factors.
Some market participants are concerned about rapid factory-gate inflation.
"For policymakers in Beijing, they have good news on the exports front, and they are still reluctant to rescue those developers in trouble. And, even with more liquidity injections, we think the impact would be small," said Lu Ting, chief China economist at Nomura.
"The real issue is the transmission channel is blocked due to Beijing's unprecedented curbs on the property sector and energy consumption as well as its zero-COVID policy," Lu said this week.
A total of 1.95 trillion yuan worth of MLF loans are set to expire in the remainder of this year.
The central bank also injected another 10 billion yuan worth of seven-day reverse repos into the banking system on the day, offseting same amount of the short-term liquidity tool set for Friday.
(US$1 = 6.4380 Chinese yuan)
(Reporting by Winni Zhou and Andrew GalbraithEditing by Shri Navaratnam and Sam Holmes)