The People’s Bank of China today maintained the key interest rate

The People’s Bank of China (PBOC) decided today (Dec. 15) to leave its key interest rate unchanged, suggesting that the PBOC may freeze the lending prime rate (LPR) next week in an effort to revive the economy. The PBOC decided to keep the one-year medium-term lending facility (MLF) rate, China’s benchmark interest rate, at 2.75%.

At the same time, the PBOC injected 650 billion yuan ($94 billion) of liquidity into the financial system, which is expected to suddenly boost China’s bond market after pressure from China’s drastic change in COVID-19 policy.

The market expects the PBOC to hold the one-year LPR at 3.65% and the five-year LPR at 4.30% on Tuesday, December 20, if it keeps the policy rate constant. The head of China macroeconomic strategy department at Standard Bank said the PBOC’s liquidity injection following the 0.25 percentage point cut in the reserve requirement ratio (RRR) reflects the PBOC’s stance on monetary easing and aims to support credit growth.

In addition, China’s injection of liquidity will ease tensions in the financial markets. This is because investors sold bonds and retail investors bought back bonds after China opened up.

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