China keeps medium-term lending facility rate at 2%

The People's Bank of China (PBOC) on Friday decided to maintain its one-year medium-term lending facility (MLF) rate at 2%, aligning with market expectations and following a 30 basis point (bps) cut in September.

In a monthly policy meeting, the central bank opted to keep the benchmark rate unchanged, while injecting 700 billion yuan into the system through the MLF. With 789 billion yuan worth of MLF loans maturing, this resulted in a net withdrawal of 89 billion yuan ($12.5 billion).

While the MLF has been a cornerstone of China's monetary policy, the PBOC has been gradually shifting its focus towards the seven-day reverse repo rate, which currently stands at 1.5% after a 20 bps reduction in late September.

"Today's decision was largely in line with expectations, both in terms of the hold and the small net withdrawal," Xiaojia Zhi, Chief Economist-China at Credit Agricole SA, told Bloomberg.

"We may see further easing measures next month, such as a cut in the reserve requirement ratio, with a 50 bps reduction being likely."

With 2.9 trillion yuan worth of MLF loans set to mature, the government may issue more bonds, Zhi added.

Separately, the PBOC conducted a seven-day reverse repo operation of 292.6 billion yuan ($41.2 billion) at a rate of 1.5% to maintain ample liquidity in the banking system.