China Central Bank Leaves Interest Rates Unchanged

When rolling over maturing medium-term policy loans on Jan 15, China's central bank increased liquidity injections but surprised markets by leaving the interest rate unchanged. The People's Bank of China (PBOC) announced that it would maintain the rate on 995 billion yuan ($138.84 billion) in one-year medium-term lending facility (MLF) loans to some financial institutions at 2.50 percent, unchanged from the previous operation.

According to a Reuters poll of 35 market participants last week, 19 or 54.3 percent expected the central bank to lower the MLF rate to help shore up the economy. Furthermore, the vast majority of respondents expected the PBOC to inject new funds into the financial system in excess of the amount that was maturing. The operation resulted in a net 216 billion yuan fresh fund injection into the banking system, with 779 billion yuan of MLF loans set to expire this month.

In addition, the central bank injected 89 billion yuan through seven-day reverse repos while keeping borrowing costs unchanged at 1.80%, according to an online statement.