(Adds analysts comments, background)
SHANGHAI/SINGAPORE, May 15 (Reuters) - China's central
bank rolled over maturing medium-term policy loans while keeping
the interest rate unchanged on Monday, as expected, but markets
expect monetary easing may be inevitable in the coming months to
support the economic recovery.
The People's Bank of China (PBOC) said it was keeping the
rate on 125 billion yuan ($18.08 billion) worth of one-year
medium-term lending facility (MLF) loans to
some financial institutions unchanged at 2.75% from the previous
operation.
Monday's operation was meant to fully meet financial
institutions' needs and to "maintain reasonably ample banking
system liquidity," the PBOC said in an online statement.
In a Reuters poll of 30 market watchers conducted last week,
26 participants, or 86.7%, predicted no change to the MLF rate,
while four respondents expected a marginal rate cut.
The government lifted stringent pandemic measures in
December that have started to rekindle credit demand in the
world's second-largest economy, but there are growing concerns
that momentum is slowing after the initial bounce.
With evidence of subdued domestic demand and weak investor
sentiment, Beijing will likely have to ramp up its easing
efforts to ensure the economic recovery stays on track.
Some analysts said an imminent rate cut would add further
pressure on lenders' profitability after the country's largest
banks recorded shrinking margins in the first quarter.
"It may not be possible for banks to cut as their net
interest margins are close to the warning line of 180 basis
points," Xing Zhaopeng, senior China strategist at ANZ, said.
"If loans rates are further lowered, that could trigger
financial risks," he said.
With 100 billion yuan worth of MLF loans set to expire this
month, the operation resulted in a net 25 billion yuan fresh
fund injection into the banking system.
The central bank also injected 2 billion yuan through
seven-day reverse repos while keeping borrowing
costs unchanged at 2.00%, it said in an online statement.
"We think disappointing credit data and rising deflation
risks increase the probability of more monetary policy easing in
the form of an interest rate cut," economists at Barclays said
in a note published last week.
"....a holistic approach and concerted policy efforts are
needed to stabilise the housing market and boost consumer and
business confidence if authorities are to break the
disinflation/deflation spiral."
They noted that the PBOC appeared to prefer adjusting banks'
reserve requirement ratio (RRR) and other structural tools, "but
the bottleneck is weak demand and the bank system is flush with
liquidity," they added.
($1 = 6.9121 Chinese yuan)
(Reporting by Winni Zhou in Shanghai and Tom Westbrook in
Singapore; Editing by Jacqueline Wong)
Messaging: winni.zhou.thomsonreuters.com@reuters.net))
