(MENAFN) In a surprising move, China's central bank, the People's Bank of China, opted to maintain its key interest rate on one-year loans, known as the medium-term lending facility (MLF), at 2.5 percent. This decision contradicted widespread expectations among economists, who anticipated the first rate cut since August as a measure to bolster the economy. The central bank's unexpected move reflected its strategy of injecting additional funds into the financial system.
Despite keeping the interest rate steady, the People's Bank of China infused 995 billion yuan (approximately USD139 billion) in liquidity into banks through medium-term lending facilities. This substantial injection resulted in a net provision of 216 billion yuan, aiming to enhance liquidity and meet the increasing demand for financing.
Frederick Neumann, chief Asian economist at HSBC, commented on the central bank's decision, stating, "The bank’s decision not to cut interest on loans for one year indicates that there is not much urgency regarding adding more stimulus to the Chinese economy," as reported by Bloomberg. However, some market observers noted that narrowing interest rate spreads at commercial banks and a weakened Chinese yuan have constrained the People's Bank of China's maneuvering room. Consequently, expectations for interest rate cuts may be postponed until later in the year.
China's economic landscape continues to present challenges, with recent data underscoring an uneven recovery. While December witnessed a rebound in exports, credit growth remains sluggish, and deflationary pressures persist. As the People's Bank of China navigates these complexities, its decision to maintain the interest rate reflects a nuanced approach to balancing economic stimuli with the need for stability.
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