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Economist at UOB Group Ho Woei Chen, CFA, comments on the recent PBoC event.

Key Quotes

“The People’s Bank of China (PBOC) kept its Loan Prime Rate (LPR) unchanged with the 1Y LPR and the 5Y & above LPR set at 3.85% and 4.65% respectively today. The move is in line with PBOC’s decision to keep its 1Y medium-term lending facility (MLF) rate which the LPR is pegged to, unchanged at 2.95% on Monday (17 May) after injecting CNY100 billion of 1Y MLF funds to match the maturity.”

“The central bank has also maintained steady liquidity injections in its open market operations to offset maturities over the last three months, keeping the monetary policy setting neutral. The stability in the overnight interbank rate also pointed to sufficiently ample market liquidity. Meanwhile, China’s 10-year government bond yield has continued to slide from its year’s high of 3.284% on 18 February to around 3.111%.”

We maintain our forecast for both the 1Y LPR and the 5Y & above LPR to be kept unchanged at 3.85% and 4.65% respectively for the rest of the year.“

“The key risks to China’s growth and monetary policy include the resurgence of COVID-19 infections which is taking place across Asian economies as well as ongoing geopolitical tensions as White House’s review of its policies towards China in core areas such as trade and national security are due to be completed by June.”

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