China’s central bank decided against rolling over some medium-term loans, according to people familiar with the matter, as monetary easing in recent months lowered lenders’ borrowing costs.
The People’s Bank of China didn’t extend at least some of the funds issued via its Medium-term Lending Facility, according to the people, who asked not to be identified because the move hasn’t been made public. There is 670 billion yuan ($108 billion) in three-month MLF loans maturing this month, according to Bloomberg calculations from central bank data.
Monetary easing this year has meant it’s now cheaper for banks to obtain funds from one another than from the central bank. The three-month Shanghai Interbank Offered Rate has tumbled 190 basis points since March to 3 percent, poised for the biggest quarterly decline since 2008. The PBOC’s medium-term loans had a rate of 3.5 percent.
Some of the medium-term loans are set to mature today and some tomorrow, a person familiar with the matter said.
The lack of a rollover tightens liquidity that’s already strained as 25 initial public offerings lock up funds and at least five regional governments sell bonds this week. The central bank may add funds to the financial system by cutting lenders’ reserve requirements or in open-market operations if the MLF aren’t renewed, Guosen Securities analyst Dong Dezhi wrote in a note before the news.
The PBOC didn’t reply to a fax seeking comment. Market News International reported earlier that some of the MLF funds won’t be rolled over.
— With assistance by Steven Yang, Heng Xie, and Xize Kang