People’s Bank of China to boost liquidity with Medium-term Lending (MLF) injection today

The People’s Bank of China will be setting its Medium-term Lending Facility (MLF) rate today.

  • the interest rate on the MLF loans currently stands at 2.5%
  • 650 billion yuan ($91.11 billion) worth of the MLF loans mature today and the Bank is expected to inject a greater amount than this in order to boost bank liquidity
  • due around 0115 GMT.

The MLF rate is a benchmark interest rate that banks in China can use to borrow funds from the People’s Bank of China for a period of 6 months to 1 year. Thart is, its a rate for the PBOC to provide medium-term liquidity to commercial banks.

  • The rate is normally announced on the 15th of each month.
  • The interest rate on the MLF loans is typically higher than the benchmark lending rate (more on these below), which encourages banks to use the facility only when they face a shortage of funds.
  • MLF loans are secured by collateral, which can be a wide range of assets including bonds, stocks, and other financial instruments. The collateral ensures that the PBOC can recover the funds if the borrower defaults on the loan.

I’ve seen basically no expectations of a rate change for this today.

The MLF rate sets the scene for the monthly Loan Prime Rate (LPR) setting on the 20th. Current LPRs:

  • 3.45% for the one year
  • 4.20% for the five year

Also from China today:

This article was written by Eamonn Sheridan at Source