PBOC to continue with liquidity help as Yi stays on as governor
THE People’s Bank of China (PBOC) is expected to extend monetary support this week and maintain a key policy rate after Beijing retained its governor in a leadership reshuffle that signals policy continuity.
The central bank will probably provide 350 billion yuan (S$68.45 billion) to financial institutions through a medium-term lending facility on Wednesday (Mar 15), as 200 billion yuan of the one-year policy loans mature, according to the median estimate of seven analysts surveyed. The net expected to increase in liquidity would be less than the 199 billion yuan last month.
The PBOC’s decision will follow Yi Gang’s reappointment as the central bank governor by China’s Parliament on Sunday along with several other top economic officials including the finance minister. The surprise lineup indicates authorities’ intention to maintain policy consistency in a bid to boost investor confidence and engineer a post-Covid recovery.
Market expectations for significant stimulus from Beijing had dimmed after Chinese leaders unveiled a consensus-lagging growth goal of around 5 per cent for 2023. While analysts were earlier in the year predicting rate cuts, some have dialled back their calls after China made clear its aim to rely more on consumers to drive the economy, rather than through debt-fuelled spending.
“The policy signals from the PBOC and the National People’s Congress (NPC) meeting point to a reduced likelihood of MLF rate cuts this year,” said Tommy Wu, senior economist at Commerzbank. “The prospect of higher Fed terminal rate also acts as a constraint as widening interest rate differentials could trigger capital outflows and further yuan weakness.”
The PBOC is expected to keep the MLF interest rate unchanged at 2.75 per cent. It was last cut in August.
Recent data paint a mixed picture for the world’s second-largest economy. While manufacturing and services activity beat expectations last month, exports and imports suffered a continued slump. Meantime, consumer and producer prices remained subdued.
For some analysts, the uneven post-Covid recovery may prompt the authorities to eventually resort to more policy easing, either by lowering the MLF rate or banks’ reserve requirements.
“We maintain our expectation of an LPR/MLF rate cut this year, but the timing is not likely to be so soon after the NPC,” said Chang Wei Liang, macro strategist at DBS Bank. “Monetary policy support should continue, but there is also increased cognisance of risks related to local government debt burdens.” BLOOMBERG
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