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China’s Central Bank Holds Key Rate Steady Amid Liquidity Adjustments

China's Central Bank Holds Key Rate Steady Amid Liquidity Adjustments

China’s central bank, the People’s Bank of China (PBOC), maintained its one-year medium-term lending facility (MLF) rate at 2.0% on Tuesday, in line with market expectations. The decision reflects authorities’ stance on keeping short-term policy rates unchanged this month.

In its latest liquidity operation, the PBOC injected 300 billion yuan ($67.99 billion) into the financial system through the MLF. However, with 500 billion yuan in MLF loans maturing, the move effectively results in a net liquidity drain of 200 billion yuan from the market. Following the transaction, total outstanding MLF loans stood at 4.094 trillion yuan.

The MLF rate was previously China’s primary policy tool, but recent reforms have linked benchmark lending rates to shorter-term instruments. This shift aims to enhance market-based interest rate adjustments and improve monetary policy transmission.

The PBOC’s decision to keep rates steady comes as China navigates a slowing economy and efforts to balance economic stimulus with financial stability. Analysts will closely watch upcoming monetary policy signals, particularly regarding liquidity injections and potential adjustments to lending rates.

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