People’s Bank of China (PBOC) will inject additional cash into the banking system beyond the maturing 100 billion yuan.

China’s central bank is expected to roll over maturing medium-term policy loans and cut borrowing costs for the second time this year, a Reuters poll showed on Monday, as the a fresh wave of coronavirus infections weighs on the broader economy.

Twenty-nine out of the 49 traders and analysts, or 59per cent of all participants, predicted a reduction to the interest rate on one-year medium-term lending facility (MLF) when the central bank is set to renew 100 billion yuan ($15.75 billion) worth of such loans on Tuesday.

Among them, 22 expected a 10-basis-point cut to the MLF rate, while the other seven participants forecast a marginal 5 basis point decline.

Of the remaining 20 respondents, 13 believe the People’s Bank of China (PBOC) will inject additional cash into the banking system beyond the maturing 100 billion yuan.

Worsening COVID may push Beijing to step up easing measures, Lu Ting, chief China economist at Nomura said in a note.

We think the likelihood of the PBOC cutting the one-year MLF rate and seven-day (open market operation) repo rate on March 15 is reasonably high, but the size could be just around 10 basis points again, he said.

Lu also expects the PBOC to lower the amount of cash banks must set side by 50 basis points in coming months, which would be the second easing after the central bank cut the one-year MLF rate by 10 bp to 2.85per cent in January.

Former PBOC adviser Yu Yongding expects China will further cut interest rates to stabilise the economy, media reported on Monday.

China is experiencing a COVID resurgence with the country reporting its highest daily local symptomatic cases in two years over the weekend.

The rising cases could complicate Beijing’s dynamic-clearance ambition to suppress contagion as quickly as possible.

Some analysts said slowing economic conditions even before the surge in new COVID-19 cases suggested a strong case for additional stimulus.

After the soft February aggregate financing and money supply data, expectation for an imminent interest rate cut has built up, said Frances Cheung, rates strategist at OCBC Bank.

Any adjustment to the MLF rate could pave the way for similar reductions to the country’s lending benchmark loan prime rate (LPR), which is due next Monday.


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