China’s central bank extends maturing loans and injects cash By Reuters

SHANGHAI (Reuters) – China’s central bank renewed maturing medium-term loans on Monday and injected cash through its liquidity tools, underscoring market expectations for further easing as the economy struggles to gain traction.

The People’s Bank of China (PBOC) said it was keeping the 300 billion yuan ($42.11 billion) medium-term lending rate (MLF) to financial institutions at 2.30 percent, unchanged from the previous operation.

And it injected another 471 billion yuan through seven-day reverse repos, while keeping borrowing costs unchanged at 1.70 percent.

“Today’s result adds to expectations for a reduction in the reserve requirement ratio (RRR) in the near term,” said Frances Cheung, head of FX and rates strategy at OCBC Bank.

“Meanwhile, as U.S. rates fell further, there could also be renewed expectations for an interest rate cut (in China).”

China is facing a protracted housing crisis, which has reduced investment and hurt consumer demand.

Monday’s reverse repo operation was intended to “maintain the banking system’s end-of-month liquidity conditions reasonably well,” the central bank said in an online statement.

A batch of FML loans worth 401 billion yuan was due earlier this month when the PBOC said it would delay the loan rollover.

The postponement and succession of a string of key interest rate cuts last month suggested the central bank had changed its monetary policy framework, market watchers said, shifting the short-term rate to be the main signal-guiding markets.

OCBC’s Cheung expected the spread between 5-year and 30-year yields and China’s 2- and 30-year government bond yields to widen.

PBOC Governor Pan Gongsheng, in a statement published in state media on Saturday, said the central bank would adhere to a supportive monetary policy to guide reasonable credit growth and help the second-largest economy of the world.

Federal Reserve Chairman Jerome Powell made clear on Friday that the US central bank will not shy away from cutting interest rates in the final weeks of a presidential election campaign and that protecting the labor market is now his top priority.

($1 = 7.1244)