China's Central Bank Likely To Maintain Medium-term Policy Rate At Monthly Rollover: Report

China's central bank is expected to keep borrowing costs unchanged while ramping up liquidity support when it rolls over USD 14.03 billion worth of medium-term policy loans on Monday, a Reuters survey of market watchers showed.

Last month, monetary authorities lowered key policy rates, as China's post-pandemic economic recovery showed signs of faltering, and there are hopes for more policy measures to raise demand in the broader economy.

Many market watchers now expect policymakers to deliver fiscal stimulus measures, as any further interest rate cuts could put the yuan currency under more pressure from a widening yield gap with the United States.

All 30 market watchers surveyed this week predicted that the People's Bank of China (PBOC) would keep the interest rate on one-year medium-term lending facility (MLF) loans unchanged at 2.65 per cent for the monthly rollover on Monday. The PBOC lowered the rate by 10 basis points last month.

Twenty-five respondents, or 83 per cent, expected fund offerings by the PBOC to exceed the 100 billion yuan maturing, while the other five forecast the central bank would just extend all the maturing loans.

"In our view, the upside surprise in credit data lowered the possibility of another policy rate cut over the near term," analysts at HSBC said in a note.

China's new bank loans jumped more than expected in June from the previous month, helped by central bank efforts to support the economy.

"Monetary policy often acts as a precursor to intensify China's macroeconomic supports," analysts at OCBC Bank said in a note.

"Consequently, interest rate cuts are frequently followed by the implementation of a comprehensive set of macroeconomic policy measures. The July Politburo meeting might shed light on additional fiscal measures."

On Friday, a senior central bank official said that the PBOC will use policy tools such as the reserve requirement ratio (RRR) and MLF to weather the challenges facing the world's second-largest economy.

China is also due to release second-quarter gross domestic product data on Monday, along with retail sales, industrial output and fixed asset investment numbers.

A Reuters poll showed that China's economy likely grew 7.3 per cent in the second quarter from a year earlier when the country was still subject to anti-Covid restrictions. But economists can easily see through the effect of the low base and expect the data will reinforce their view that the economic recovery is losing momentum.