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People’s Bank of China Maintains Policy Interest Rate at 2.5% in Line with Expectations

The People’s Bank of China (PBOC) has announced its decision to uphold the one-year medium-term lending facility(MLF), which serves as China’s policy interest rate, at 2.5% on September 15, aligning precisely with market projections.

In tandem with this decision, the PBOC infused 591 billion yuan of liquidity into the financial system, while keeping the MLF interest rate unchanged at 2.5%. The MLF interest rate serves as the benchmark rate at which commercial banks borrow funds from the People’s Bank of China, particularly for short-term liquidity enhancements over loan periods ranging from 6 months to 1 year.

It is customary for the People’s Bank of China to announce the MLF interest rate on the 15th of each month, preceding the disclosure of the one-year and five-year loan prime rate (LPR), which is scheduled for the 20th of every month.

Goldman Sachs analysts have made a prediction that the Chinese central bank may further ease monetary policy in the coming months. This potential easing could encompass a reduction in commercial banks’ reserve requirement ratio (RRR) by an additional 0.25% and a 0.10% reduction in the policy interest rate during the fourth quarter of this year. This speculation comes on the heels of the PBOC’s announcement of a 0.25% RRR cut, effective as of September 15, marking the second such reduction in RRR this year.

The PBOC’s monetary policy decisions will continue to be closely monitored by market participants and analysts, as they have a profound impact on China’s economic landscape and can potentially serve as indicators of the central bank’s outlook on economic growth and financial stability.

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