The People’s Bank of China (PBOC) on Friday, April 15, unprecedentedly left its one-year medium-term loan rate of 2.85% unchanged, contradicting popular expectations of more easing to support the country’s Covid-inflicted economic slowdown.
The PBOC also introduced 150 billion yuan (23.5 billion dollars) worth of medium-term lending facility loans. This came instead of China’s State Council, a cabinet, saying that there could be cuts in banks’ reserve requirement ratios to release more money into the system.
Bets on more stimulus were strong as China is battling its worst Covid-19 outbreak since 2020 with its strict zero-tolerance policy.
Over the past month, key financial and manufacturing hubs such as Shanghai have been sequentially put under lockdown, causing major disruptions that could jeopardize Beijing’s 5.5% GDP growth target for this year.
A Reuters poll has projected that China’s economic growth could drop to 5% this year because of the country’s latest Covid-19 resurgence.
The PBOC’s unforeseen move on Friday also contrasted previous statements from China’s Premier Li Keqiang of stronger monetary policy support for the economy, who said on April 8, “We should implement policies in advance, step up policies in a timely way and study new contingency plans.”
According to CNBC, PBOC was refraining from additional easing because of the soaring consumer prices.
Nomura’s chief China economist Ting Lu said, “Rising food and energy price inflation limits the space for the PBOC to cut interest rates, despite the rapidly worsening economy.”