(Bloomberg) — China’s central bank kept its one-year policy rate unchanged, after slashing funding costs by the most on record a month ago, suggesting authorities are cautiously pacing monetary stimulus to support the economy.
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The People’s Bank of China kept the interest rate on the medium-term lending facility steady at 2% while draining a net 89 billion yuan ($12.5 billion) for October, according to a statement Friday. All but one of the 15 economists polled by Bloomberg predicted the rate would remain unchanged.
Beijing reduced the cost on the funding facility by an unprecedented 30 basis points late September, although the rate is being replaced by a shorter-term one as the main lever to guide markets as part of the monetary authority’s recent overhaul of its policy tools.
Traders are zeroing in on any stimulus measures China has to offer, after PBOC Governor Pan Gongsheng last month announced outsized cuts to rates and the reserve requirement ratio in a blockbuster press briefing. Those moves can free up cash for banks to lend, helping the economy to meet its growth goal of around 5% this year.
“This is largely in line with market expectations, both the unchanged rate and a small net withdrawal,” said Xiaojia Zhi, chief China economist at Credit Agricole SA. “But it doesn’t mean that the PBOC is not supportive of liquidity.”
The offshore yuan was little changed after the MLF operation on Friday. Ten-year government bond yield was steady at 2.15%.
China’s economy expanded at the slowest pace in six quarters in the three months ended in September, as sluggish domestic demand and a persistent property crisis weighed on activities. Things appeared to take a turn for the better during the last stretch of the period, however, with retail sales accelerating in September.
On Friday, the PBOC added 700 billion yuan of cash with MLF as 789 billion yuan of funds came due.
The net withdrawal reflects banks’ reduced demand for cash after the previous RRR cut, as well as the fact that the MLF’s cost at 2% is still higher than market rates and other PBOC tools, analysts said.
The PBOC in recent weeks began to revamp its policy framework, which could allow it to operate more like global peers and influence market borrowing costs more effectively. It’s been downplaying the role of the MLF as a key rate while transitioning to using the seven-day reverse repurchase agreements as the main policy lever to send out a clearer signal. Unlike the MLF, which is rolled over monthly, the seven-day tool can be used daily, providing more flexibility.