China: MLF rate unchanged; Canada imposes new tariffs – Commerzbank

As widely expected, the PBoC left the medium-term lending facility (MLF) rate for August unchanged at 2.3%, after cutting it by 20bp in July. The PBoC also withdrew a net CNY101 billion from the banking system through the facility. Part of the reason for the withdrawal is that the demand for MLF loans by banks is subdued. This is because the MLF rate is more expensive than the average funding cost of around 2% for interbank lending currently, Commerzbank’s FX strategists note.

Canada imposes tariffs on China

“The MLF rate announcement was originally scheduled for 15 August but the PBoC delayed the announcement to yesterday, which was five business days after the release date of loan prime rates (LPRs) on 20 August. We will see whether the PBoC will delay the MLF rate announcement again in September, or if it will move the date to around 25th of each month permanently, as the central bank downplays the role of the MLF rate.”

“Canada announced that it will impose new tariffs of 100% on electric vehicles and 25% on steel and aluminium imported from China. The new tariff rates matched the ones imposed by the US in May this year, and way above the European Union's (EU) tariffs on Chinese EVs which ranged from 9% to 36.3%. Canada also launched a 30-day consultation on other sectors including batteries, semiconductors, solar products, and critical minerals.”

“In FX, USD/CNY rose just 10 pips at above 7.12 and the offshore USD/CNH gained 70 pips, also at above 7.12.”