China's central bank ramped up liquidity support to the banking system as it rolled over medium-term policy loans on Monday, but kept the interest rate unchanged as expected.
The People's Bank of China is walking a tight rope between keeping liquidity ample to aid a struggling economy and stabilising the yuan amid expectations of "higher for longer" U.S. rates.
With 500 billion yuan worth of MLF loans maturing, the PBOC is injecting fresh liquidity into the banking system. Market watchers polled by Reuters last week predicted no change to the MLF rate. This month, a slew of Chinese local governments, including Liaoning and Chongqing, are rushing to issue special refinancing bonds to repay outstanding liabilities, as Beijing steps up efforts to reduce growing debt risks that remain a worry for investors.In addition, tax collections by the government in October will also likely cause liquidity stress, analysts said.
But further monetary easing could widen China's yield gap with the United States, putting fresh downward pressure on the yuan , which has lost roughly 5.5% against the dollar so far this year.
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