China sets 1-year loan prime rate at 3.85% vs 3.85% a month earlier

The PBoC is unlikely to cut banks' reserve requirement ratios in the short term and will maintain liquidity mainly through reverse repos and MLFs, said the China Securities Journal in a front-page commentary.

''The PBOC would ensure sufficient money to help enterprises resume production and stabilise the recovery, while emphasising moderate liquidity and market entities' direct access to liquidity,'' the newspaper said.

• China sets 5-year loan prime rate at 4.65% vs 4.65% a month earlier.
• China sets 1-year loan prime rate at 3.85% vs 3.85% a month earlier.

Market implications

The Shanghai Composite Index is slightly lower on the announcement, extending within a fall of 0.65% today, now meeting the 10th August resistance as a new support structure. 

At the start of the week, stocks on the mainland and in Hong Kong climbed with the benchmark Shanghai Composite Index jumping 2.3% in the largest advance in nearly a month, while the Hang Seng Index rising 1.3% when China’s central bank supplied liquidity to commercial lenders.

Bloomberg reported on the event, here are some of the key notes:

• The move was to help them manage upcoming government bond sales while leaving the price of the money unchanged as the economy recovers.
• The People’s Bank of China added 700 billion yuan ($101 billion) of one-year funding via the medium-term lending facility.
• The central bank said last Friday that this week's operation was meant to offset the 400 billion yuan in loans that fell due on Monday and another 150 billion yuan maturing on Aug. 26.
• In addition to Monday’s money, the central bank last week offered the most short-term funds since May, replenishing a banking system which needs about $500 billion this month.

The net injection indicates “a more accommodative stance on keeping liquidity levels ample” so that commercial banks can continue to support bond issuance and to stabilize credit growth, said Liu Peiqian, a China economist at Natwest Group Plc. in Singapore.

The move is “a signal to ensure policy continuity and stability” rather than a reaction to a slower pace of economic recovery, she said.