People’s Bank of China rate cut coming up on Monday? Preview.

The PBOC will set the Medium-term Lending Facility (MLF) rate on Monday, 15 December. The interest rate on the MLF loans currently stands at 2.5%. It was last cut in August 2023, from 2.65%.

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. That 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.

The MLF rate sets the scene for the monthly Loan Prime Rate (LPR) setting on the 20th 22nd (the 20th is a Saturday). Current LPRs:

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

Market expectations, the consensus estimate in the Bloomberg survey of analysts, are that the Bank will cut 10bp off the MLF rate this coming Monday. The announcement will be made at 0020 GMT, 1920 US Eastern time.

We get inflation data from China today, which is expected to show continuing deflationary pressures:

This article was written by Eamonn Sheridan at www.forexlive.com. Source