China fights yuan weakness with steady interest rates as US tariff threats ease
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China’s central bank kept its medium-term lending facility (MLF) rate locked at 2.0% on Monday, stabilizing the yuan as pressure mounts following Donald Trump’s U.S. election win. The People’s Bank of China (PBOC) injected 900 billion yuan ($124.26 billion) in one-year loans to financial institutions without altering rates, signaling a cautious approach amid global economic uncertainty. The offshore yuan, battered by a stronger dollar, has dropped over 2.0% since November 5. PBOC’s cautious strategy The PBOC is juggling domestic liquidity needs, a fragile economy, and Trump’s tariff sword dangling above its exports. Monday’s decision underscores Beijing’s tightrope walk, aiming to prevent further yuan devaluation without choking growth. Commercial banks, already struggling with thin net interest margins, are feeling the pinch too. Margins fell to 1.53% by the end of September, below the 1.8% level regulators consider “healthy.” The PBOC’s refusal to touch the MLF rate aligns with its liquidity strategy. “It’s a predictable move,” said Bruce Pang of JLL, pointing to the bank’s October liquidity injection of 500 billion yuan. Total MLF loans now stand at 6.239 trillion yuan, and bid rates in this round ranged from 1.90% to 2.30%. Economists agree this is about keeping the policy toolbox flexible. UBS predicts the MLF rate will remain at 2.0% through 2024 but may drop to 1.2% by the end of 2025 and 1.0% by 2026. The yuan’s troubles aren’t new. It has lost 3.3% against the dollar since September 24, when Beijing first launched stimulus measures to counter its slowing economy. A weaker yuan helps exports but risks stoking inflation and undermining investor confidence. Gary Ng, an economist, said the PBOC’s gradual approach reflects this delicate balance. “They’ll take it step by step,” he said. America’s tariff threats ease Trump’s return to the White House was a source of fear…
Filed under: News - @ November 25, 2024 11:21 am