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Today is MLF day in China – No rate cut expected by the People’s Bank of China

by xyonent
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Pboc Mlf 16 October 2023 Id 0435bb47 Afe8 42f9 B91f 395df9594388 Size975.jpg

The People’s Bank of China sets the Medium Term Lending Facility (MLF) interest rate on the 115th of each month. Since the 15th is a Saturday, the decision will be made today instead.

The current interest rate is 2.5%, and there is a widespread view that interest rates will remain unchanged today.

What is MLF?

The People’s Bank of China’s MLF rate is the benchmark interest rate that Chinese banks can use to borrow funds for periods ranging from six months to one year from the People’s Bank of China as medium-term liquidity to commercial banks.

  • Rates are usually announced on the 15th of each month.
  • Interest rates on MLF loans are typically higher than the benchmark lending rate (more on this below), meaning banks will only turn to the facility if they face a funding shortfall.
  • MLF loans are provided as collateral over a wide range of assets, including bonds, stocks and other financial instruments. Collateral allows the PBOC to recover funds even if the borrower defaults on the loan.

The MLF interest rate will be the basis for setting the monthly loan prime rate (LPR) scheduled for the 20th. The current LPR is

  • 1 year loan prime rate 3.45%
  • 5-year loan prime rate 3.95%
  • The five-year bond was cut in February, the biggest cut in the PBOC’s five-year LPR rate ever. The five-year bond is a benchmark for mortgage rates in China, and the central reason the PBOC cut the rate was to support the deeply troubled real estate sector.

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