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PBOC leaves MLF rate unchanged at 2.5%, as expected


China’s central bank, the People’s Bank of China, left its Medium-term Lending Facility (MLF) rate unchanged at 2.5% on Sunday.

Surveys had shown around two thirds of analysts had expected the rate to be unchanged, others expecting a small cut.

500 billion yuan will be injected as one-year loans

  • 499 bn yuan mature, which means a net injection of 1 bn yuan
  • In Open Marker Operations the Bank injected 105bn yuan

No signs of monetary policy relief from China in this today. The most recent easing from the PBOC was the Reserve Requirement Ratio (RRR) earlier this month:

The People’s Bank of China

What is the MLF?

The PBOC’s MLF rate is a benchmark interest rate that banks in China can use to borrow funds from the People’s Bank of China for a period of 6 months to 1 year, as medium-term liquidity to commercial banks.

  • The rate is typically announced on the 15th of each month. Last week was a holiday in China, hence the announcement today
  • The interest rate on the MLF loans is typically higher than the benchmark lending rate (more on these below), which encourages banks to use the facility only when they face a shortage of funds.
  • MLF loans are secured by collateral, which can be a wide range of assets including bonds, stocks, and other financial instruments. The collateral ensures that the PBOC can recover the funds if the borrower defaults on the loan.

The MLF rate sets the scene for the monthly Loan Prime Rate (LPR) setting on the 20th of each month. Current LPR rates are:

  • 3.45% for the one year
  • 4.20% for the five year



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