The People’s Bank of China (PBOC) opted to keep its key interest rate steady to control a bond frenzy and support the economy cautiously.
The central bank left the rate on its one-year policy loans unchanged at 2.3%, following a 20 basis point reduction in July. In a move to balance liquidity and prevent excessive bond buying, the bank withdrew a net 101 billion yuan ($14 billion) from the banking system this month as 401 billion yuan of loans matured on August 15.
This strategic move to drain cash was explained by Bruce Pang, the chief economist for Greater China at Jones Lang LaSalle Inc., as a means for the PBOC to maintain ample liquidity while curbing bond market speculation.
The decision highlights Beijing’s careful stance on economic support following a decline in bank loans amid sluggish demand. Additionally, the PBOC has initiated stress tests with financial institutions on their bond investments to mitigate potential risks from a market reversal.
Meanwhile, economists are not dismissing the possibility of further easing by the PBOC by the end of this year, particularly as the Federal Reserve gears up to initiate a rate cut cycle, possibly starting in September.
