The People’s Bank of China (PBOC) recently injected 25 billion yuan into the country’s banking system through a Medium Term Loan Facility(MLF) program, while keeping the MLF interest rate steady at 2.75%, unchanged from last month. The MLF interest rate has remained stable for nine consecutive months, which is in line with most analysts’ expectations.
Additionally, the PBOC also injected 2 billion yuan into the economy through a seven-day reverse repo at an interest rate of 2.00 percent, also at the same level. The MLF rate announcement precedes the PBOC’s announcement of its one-year and five-year loan prime rate (LPR) on Monday. The one-year LPR rate will remain at 3.65%, and the five-year LPR rate will be at 4.30%.
As the world’s second-largest economy, China has set a 2023 economic growth target of around 5%, after experiencing only 3% expansion in 2022, the slowest rate in almost 50 years. In order to support this goal, the PBOC has reduced the reserve ratio of commercial banks (RRR) to increase liquidity in the banking system, decrease the cost of funding for the business sector, and stimulate economic recovery. The PBOC has lowered the RRR by 0.25% for all financial institutions, which has been in effect since March 27.