The People’s Bank of China (PBoC) has decided to hold its key medium-term policy rate steady after three consecutive months of deflation in the country. The rate on the PBoC’s one-year medium-term lending facility (MLF) loans remains at 2.5%, unchanged from the previous month. This decision comes after official data released on 12 January revealed that China’s consumer price index has remained negative for the past three months.
The PBoC also injected fresh liquidity into the financial system. The central bank said it was advancing the financial sector by urging lenders to continue with their support for the real economy. This move affirms the PBoC’s commitment to maintaining financial stability in the face of the country’s ongoing deflationary pressure.
China’s deflationary trend can be attributed to a combination of declining pork prices and falling oil prices. Pork prices make up a significant portion of the country’s consumer price index, so their decline has had a major impact on the overall inflation rate. In addition, falling oil prices have contributed to lower production costs for companies, which has also put downward pressure on consumer prices.
The PBoC’s decision to hold its key rate steady may be seen as a precautionary measure to prevent further deflation. By keeping interest rates low, the central bank hopes to stimulate borrowing and spending, which could help boost inflation. However, it remains to be seen whether these efforts will be effective in reversing the deflationary trend.
Overall, the PBoC’s decision to hold its key rate steady and inject liquidity into the financial system reflects its commitment to maintaining stability in the face of deflationary pressures. However, it remains to be seen whether these efforts will be successful in boosting inflation and reversing the deflationary trend in China.