PBOC inject 591bn yuan via a one-year MLF at 2.5%
- 400bn yuan of MLF are maturing today
- thus net MLF injection is 191bn yuan
- PBOC sets 14-day RR rate at 1.95% vs. 2.15% previously
The PBOC's MLF rate is a benchmark interest rate that banks in China can use to borrow funds from the People's Bank of China for a period of 6 months to 1 year, medium-term liquidity to commercial banks.
The rate is typically announced on the 15th of each month.
The interest rate on the MLF loans is typically higher than the benchmark lending rate (more on these below), which encourages banks to use the facility only when they face a shortage of funds.
The MLF rate sets the scene for the monthly Loan Prime Rate (LPR) setting on the 20th.
Current LPR rates are:
- 3.45% for the one year
- 4.20% for the five year
MLF loans are secured by collateral, which can be a wide range of assets including bonds, stocks, and other financial instruments. The collateral ensures that the PBOC can recover the funds if the borrower defaults on the loan.
The MLF has already been cut twice since June. Last month it was cut from 2.65% to 2.5%. At the same time the 7-day reverse repo rate was cut, to 1.8% from prior 1.9%. The cut to the MLF paved the way from an LPR cut last month, the 1-year was trimmed to 3.45% from 3.55% while the 5-year remained unchanged.