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By: Manaoh Kikekon
PBOC Adopts Auction-Based Pricing for Medium-Term Loans to Gauge Market Demand
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| Chinese Central Bank |
China’s central bank announced changes to its medium-term lending operations, a shift analysts say could further weaken the instrument’s role in guiding monetary policy.
The People’s Bank of China (PBOC) revealed plans to issue 450 billion yuan ($62.03 billion) in one-year medium-term lending facility (MLF) loans on Tuesday.
Starting this month, MLF operations will transition to a fixed-quantity, interest-rate bidding, and multiple-price bidding approach, the PBOC said.
"This fixed-volume, auction-based method is another step toward reducing the MLF rate’s role as a policy benchmark," said Frances Cheung, head of FX and rates strategy at OCBC Bank. "The new pricing mechanism will allow policymakers to assess market demand at varying interest rate levels."
The PBOC stated that the adjustment aims to "maintain ample banking system liquidity" and "better address the differentiated funding needs of financial institutions."
In recent years, China’s central bank has increasingly relied on the seven-day reverse repo rate as its primary policy tool, while scaling back the influence of other bond instrument rates.
This month, 387 billion yuan in MLF loans were set to mature. Tuesday’s operation is expected to inject a net 63 billion yuan into the market, providing liquidity support, according to Cheung.
The PBOC also signaled potential future easing, stating after a quarterly policy meeting that it would cut banks’ reserve requirement ratio and interest rates at the "appropriate time."
($1 = 7.2542 Chinese yuan renminbi)
(REUTERS)