Injects 1450 bn yuan for 1 year
- 850bn yuan of MLF mature today
- thus a 600 bn yuan injections via 1 year funds, the largest since December 2016
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What is the MLF?
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, as medium-term liquidity to commercial banks.
- The rate is typically announced on the 15th of each month. That was Sunday so we get it today.
- 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.
- 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 rate sets the scene for the monthly Loan Prime Rate (LPR) setting later this week on the 20th. Current LPR rates are:
- 3.45% for the one year
- 4.20% for the five year
The MLF has already been cut twice since June. In August 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 the prior 1.9%. The cut to the MLF paved the way for an LPR cut in August, the 1-year was trimmed to 3.45% from 3.55% while the 5-year remained unchanged.
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