ING: "PBOC surprises markets with an off-schedule 20bp cut to the MLF"

Earlier today:

• People's Bank of China reduces 1 year Medium-term Lending Facility (MLF) rate to 2.3%

This followed the Bank leaving the MLF rate unchanged last week:

• PBOC to lower collateral for Medium-term Lending Facility (MLF) loans

ING say the decision today was a surprise for two reasons:

1. The timing

• After keeping the MLF unchanged earlier this month, most had assumed monetary policy would likely remain unchanged this month.
• Most were expecting the MLF to be lowered at next month's decision, but given the broader direction of monetary policy easing, as well as needs from the real economy, there was no need to wait.

2. The scale of the cut

• a 20bp cut instead of a 10bp cut to the 7-day reverse repo rate, and 10bp reductions of bank LPRs
• A larger cut to the MLF relative to the LPR could also provide some support to banks' interest margins, though it is possible that the LPR may be further lowered as an immediate impact from the MLF cut instead.

ING summary of the cuts: