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China keeps medium-term policy rate unchanged for fifth straight month

China keeps medium-term policy rate unchanged for fifth straight month

FILE PHOTO: The headquarters of the People's Bank of China, the central bank, is pictured in Beijing, China, as the country is hit by an outbreak of the new coronavirus, February 3, 2020. REUTERS/Jason Lee

SHANGHAI :China's central bank kept its medium-term policy rate unchanged for the fifth straight month, as expected, on Wednesday, with analysts saying the U.S. Federal Reserve's aggressive rate increases were forcing Beijing's hand.

While Beijing has pledged to ramp up stimulus measures to underpin the broad economy hurt by COVID-19 shocks, it is wary of a growing divergence in monetary policy between China and other major economies triggering a depreciation of the yuan and capital outflows.

The People's Bank of China (PBOC) said it was keeping the rate on 200 billion yuan ($29.68 billion) worth of one-year medium-term lending facility (MLF) loans to some financial institutions unchanged at 2.85 per cent from the previous operation.

The PBOC said the cash injection was to "keep banking system liquidity reasonably ample," according to an online statement.

Thirty of 31 poll respondents had forecast no change in the interest rate on the one-year MLF rate, according to the latest Reuters poll.

"The PBOC was maintaining the status quo with regard to a more aggressive Fed tightening," said Xing Zhaopeng, senior China strategist at ANZ.

But Xing expects the central bank to resume monetary easing by cutting banks' reserve requirement ratio by 50 basis points in the third quarter of this year.

Fast-changing views in financial markets have opened the door to a larger-than-expected three-quarter-percentage point interest rate increase at the Fed's policy meeting this week.

The Chinese central bank also said it injected 10 billion yuan through seven-day reverse repos while keeping borrowing costs unchanged at 2.1 per cent.

($1 = 6.7395 Chinese yuan)

Source: Reuters


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