SHANGHAI, Jan 24 — China’s central bank today raised the interest rate on a key liquidity tool, the medium-term lending facility (MLF), as it rolled over maturing loans, triggering a fall in prices of benchmark bond futures.
The People’s Bank of China (PBOC) pushed up the interest rate for one-year MLFs by 10 basis points, taking it to 3.1 per cent, it said in a statement. It also increased the rate on the six-month tenor by 10 basis points to 2.95 per cent.
The MLF is a supplementary policy tool the central bank uses to manage liquidity conditions and medium-term interest rates in the banking system and money markets.
Markets participants were caught off guard by the sudden rise in rates just days before the Lunar New Year.
A trader at a Chinese bank in Shanghai thought the timing was odd, given the generally tight liquidity conditions ahead of the week-long holiday.
“I have no idea why the bank released such bad news ahead of the holiday. The purpose of raising the interest rates on MLFs is still to cut leverage at financial institutions,” said the trader, who could not be identified by name because she was not authorised to speak to the media.
The last time the PBOC adjusted the interest rates on MLF loans was February 2016, when the bank lowered the offered rates for six-month and one-year tenors.
The PBOC said it raised the rates today “to maintain basic stability in the banking system”.
It also lent 245.5 billion yuan (RM158.7 billion) to 22 financial institutions via MLFs, it said. — Reuters