There were little expectations for a rate cut from the PBOC on this – so quite the surprise.
PBOC inject 401bn yuan via a one-year MLF at 2.5%
- 400bn yuan of MLF are maturing today
- thus net MLF injection is 1bn yuan
The PBOC has also cut the 7 day reverse repo rate. To 1.8% from prior 1.9%.
The PBOC’s 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, medium-term liquidity to commercial banks.
The rate is typically 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.
The MLF rate sets the scene for the monthly Loan Prime Rate (LPR) setting on the 20th. Given this is a Sunday we’ll get these on the 21st instead.
Current LPR rates are:
- 3.55% for the one year
- 4.20% for the five year
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.
This article was written by Eamonn Sheridan at www.forexlive.com. Source