People's Bank of China set MLF rate at 2.5% (expected 2.5%, prior 2.5%)

<p>PBOC inject 591bn yuan via a one-year MLF at 2.5%</p><ul><li>400bn yuan of MLF are maturing today</li><li>thus net MLF injection is 191bn yuan</li></ul><p>Also:</p><ul><li>PBOC sets 14-day RR rate at 1.95% vs. 2.15% previously </li></ul><p>–</p><p>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, medium-term liquidity to commercial banks.</p><p>The rate is typically announced on the 15th of each month.</p><p>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.</p><p>The MLF rate sets the scene for the monthly Loan Prime Rate (LPR) setting on the 20th. </p><p>Current LPR rates are:</p><ul><li>3.45% for the one year</li><li>4.20% for the five year</li></ul><p>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.</p><p>The MLF has already been cut twice since June. Last month it was cut from 2.65% to 2.5%. At the same time the 7-day reverse repo rate was cut, to 1.8% from prior 1.9%. The cut to the MLF paved the way from an LPR cut last month, the 1-year was trimmed to 3.45% from 3.55% while the 5-year remained unchanged.</p>

This article was written by Eamonn Sheridan at www.forexlive.com.