People's Bank of China set MLF rate at 2.5%, big cut from prior 2.65%

<p>There were little expectations for a rate cut from the PBOC on this – so quite the surprise.</p><p>PBOC inject 401bn 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 1bn yuan</li></ul><p>The PBOC has also cut the 7 day reverse repo rate. To 1.8% from prior 1.9%.</p><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. Given this is a Sunday we'll get these on the 21st instead.</p><p>Current LPR rates are:</p><ul><li>3.55% 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>

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