China’s $55b MLF maturity will give a signal on easing

Bloomberg

China’s central bank will likely roll over maturing debt to ease liquidity in the financial system as the economy slows amid the trade dispute with the US.
The People’s Bank of China is expected to roll over 383 billion yuan ($55 billion) of medium-term lending facility loans due to mature on Thursday, analysts said, after July industrial output growth weakened to a 17-year low.
While investor sentiment got a boost on Wednesday from President Donald Trump’s decision to delay the imposition of new tariffs on some Chinese goods, the latest data give the central bank a reason to add stimulus for the economy.
“The data today call for the PBOC to ease,” said Zhaopeng Xing, a markets economist at ANZ Bank China Co. “I expect more medium-term lending facility debt will be offered to small regional banks in a targeted manner this time.”
The central bank is unlikely to lower rates by the end of this quarter, according to Zhou Hao, a senior emerging markets economist at Commerzbank AG in Singapore. “If they did want to cut, they should have cut the open-market operation rates over the past two weeks,” he said.
While the People’s Bank of China typically rolls over the maturing medium-term loans, it could also use the opportunity to inject extra cash or lower the interest rate on the funds. The economy is under pressure from the trade war, with China’s industrial output growth weakening to a 17-year low in July.
The PBOC has previously also offered targeted medium-term loans. These funnel money to some lenders while avoiding broad easing. To get the cheaper financing, banks must pledge to lend more to small and private firms.
The central bank didn’t follow the Federal Reserve and reduce policy rates about two weeks ago. Excessive easing could pressure its currency, which fell to a more-than decade low last week after the US planned new tariffs on Chinese goods.
The yield on the most-actively traded 10-year government bonds was little changed at 3% as of 2:24 pm in Shanghai. The cost touched that level for the first time since 2016 on Tuesday after dropping more than 40 basis points from a peak in April.