China : Central bank queries some banks on MLF demand – sources

SHANGHAI The People’s Bank of China has queried some banks on their demand for medium term lending facility (MLF) loans later in July, multiple sources with direct knowledge of the matter told Reuters on Friday.

China’s central bank has increasingly relied on MLF loans to guide medium-term interest rates and manage liquidity in the banking system. They are typically for periods from three months to one-year long.

More broad-based easing tools such as cuts to banks’ reserve requirement ratios release too much liquidity into the banking system at a time when policymakers are trying to manage rising credit risks and avoid sharp yuan depreciation, analysts say.

“As things stand and pending another internal or external shock we expect (the PBOC) to support the economy by sticking to its box of liquidity management tools and a managed depreciation of the renminbi rather than anything more dramatic,” wrote Gilliam C. Hamilton, head of the Beijing office of NSBO China Policy Research in a note on Thursday.

Sources said the loans would be offered on July 13 and July 18, when previous MLF loans would come due.

An editorial in the state-owned China Securities Journal earlier this week said that a slower increase in money supply was likely in the second half, and the central bank would continue to rely on MLFs to manage banking sector liquidity.

The PBOC, when contacted by Reuters, had no immediate comment.

(Reporting By Nathaniel Taplin and the Shanghai Newsroom; Editing by Christian Schmollinger and Kim Coghill)