China’s central bank keeps its medium-term policy rate unchanged for a sixth month

China’s central bank kept its key medium-term rate unchanged for a sixth consecutive month on Friday, as expected, as investors believe the bank intends to gradually normalize monetary policy after the easing carried out during the Covid shutdowns.

The People’s Bank of China (PBOC) left the rate on 100 billion yuan ($14.8 billion) of one-year medium-term loans (MLFs) to certain financial institutions unchanged at 2.85% from a the previous operation.

Friday’s MLF operation was aimed at “maintaining reasonably sufficient liquidity in the banking system,” the central bank said in an online statement.

In a poll this week of 29 market watchers, not all respondents expected any change in the MLF rate.

Traders and economists noted that the central bank had recently signaled less accommodative monetary policy in the second half.

Asked about the chances of a further cut in banks’ reserve requirement ratio (RRR) and interest rates, the central bank said recent liquidity conditions were already ample and even marginally elevated.

“There are still chances of lowering the prime lending rate (LPR) in the second half of this year, but policy rates are unlikely to be lowered,” said Xing Zhaopeng, senior China strategist at ANZ.

The monthly fixing of the LPR, which now serves as China’s benchmark lending rate, is due next Wednesday.

Meanwhile, the PBOC has reduced the volume of daily repos since the start of this month by making its biggest cash withdrawal from the financial system in three months last week.

The move has raised market speculation that policymakers are phasing out the crisis-mode monetary easing provided during the Covid shutdowns.

With the same amount of these MLF loans maturing on Friday, the operation resulted in a zero net injection of liquidity into the banking system.

The central bank also injected 3 billion yuan through seven-day reverse repos while keeping the cost of borrowing unchanged at 2.1 percent, according to the statement.