From China today we have the People's Bank of China setting this month's Medium-term Lending Facility (MLF) rate. In June the PBOC cut the MLF rate,
signalling a cut to loan prime rates that followed a few days later:
There is no change expected to the MLF today.
The rate setting comes around 0120 GMT.
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And, ICYMI earlier - it's a Japanese holiday today, markets there are closed. This will thin out forex liquidity somewhat (the major FX centres of New Zealand, Australia, Singapore and Hong Kong are all open as normal, as is mainland China). This will also mean no cash US Treasury trade.
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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.
The rate is typically announced on the 15th of each month. Given the 15th was on Saturday we'll be getting today instead.
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.
The MLF rate sets the scene for the monthly Loan Prime Rate (LPR) setting on the 20th.
Current LPR rates:
- 3.55% for the one year
- 4.20% for the five year
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.
