The People's Bank of China cut the MLF rate by 30 basis points, injecting 300 billion yuan of liquidity.

The central bank today conducted a 300 billion yuan Medium-term Lending Facility (MLF) operation with a one-year term, lowering the bid rate by 30 basis points to 2.00%. This move aims to maintain liquidity in the banking system and stabilize the financial markets. A total of 591 billion yuan in MLF is due to mature this month, and the central bank has pre-announced the rollover.

Pan Gongsheng, Governor of the People's Bank of China, announced reductions in the reserve requirement ratio and policy interest rates, with the 7-day reverse repo operation rate cut by 0.2 percentage points to 1.5%. It is expected that the MLF rate will be cut by about 0.3 percentage points, and the Loan Prime Rate (LPR) and deposit rates will also be lowered by 0.2 to 0.25 percentage points.

Haitong Macroanalysis pointed out that current economic data is weak, and the need for policy stability and growth has increased. The annual reduction in the reserve requirement ratio has already reached 100 basis points, and the central bank indicated that it may further reduce the reserve requirement ratio by 0.25 to 0.5 percentage points before the end of the year. The amount of MLF maturing in the fourth quarter reaches 3.69 trillion yuan, and the reduction in the reserve requirement ratio helps to replenish liquidity and reduce the cost of bank funds.

Huachuang Securities believes that the current exchange rate pressure is small, and there is significant room for monetary policy adjustments. The central bank stated that after this round of adjustments, the average deposit reserve ratio for banks has dropped to 6.6%, leaving further room for reduction. It is expected that the LPR and deposit rates will follow suit with a reduction of about 0.2 to 0.25 percentage points in the near months.

Explanation:

• MLF (Medium-term Lending Facility): A tool used by the central bank to provide medium-term loans to commercial banks.
• LPR (Loan Prime Rate): The lending rate that commercial banks charge to their most creditworthy customers.
• Reverse Repo Operation: An operation by the central bank to inject short-term liquidity into the market.