China expected to renew medium-term loans, rate change not expected

SHANGHAI, Feb 14 (Reuters) – China’s central bank is expected to roll over its medium-term loans coming due this week, but a second straight cut in its lending rate is unlikely, a Reuters survey has found.

Nineteen of 22 financial institutions surveyed said they expected the People’s Bank of China (PBOC) to issue 200 billion yuan ($31.45 billion) in medium-term loans (MLF) on Tuesday, matching the amount due on Friday.

The other three said they expect issuance to slightly outpace the value of maturing loans this week, indicating the PBOC’s easing stance.

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All survey respondents said they expect the MLF rate to remain stable.

In January, the PBOC unexpectedly cut the rate on one-year MLF loans to certain financial institutions by 10 basis points to 2.85% from 2.95% previously, alongside a 10 basis point cut in the rate seven-day reverse repurchase agreements. Read more

These cuts triggered a small round of further cuts, with the country also cutting its standing loan rates (SLF) and benchmark prime rates (LPR). Read more

The MLF rate serves as a guide to the LPR, which is decided on the 20th of each month.

However, expectations of further cuts are limited, particularly following stronger than expected January lending data, which was seen as addressing some concerns about the strength and effectiveness of stimulus.

“I don’t think rates are likely to move. January’s credit data wasn’t bad, I think we have to watch another month,” said Zhou Hao, senior economist at Commerzbank Asia.

The PBOC said on Friday it would maintain reasonably adequate liquidity and step up financial support to key sectors and weak links in the economy, but would not resort to “flood-like” stimulus. Read more

In addition to the 200 billion yuan of MLF loans maturing on Friday, a total of 300 billion yuan of reverse repos are maturing this week.

The PBOC on Monday drained 210 billion yuan net from the financial system through its regular open market operations, conducting a seven-day 10 billion yuan reverse repo operation against 220 billion yuan in reverse repos at maturity of seven and 14 days.

($1 = 6.3587 Chinese Yuan)

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Reuters Fixed Income Team Reports; Written by Andrew Galbraith; Editing by Sam Holmes

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