As hinted by traders last hour, the Chinese central bank, the People’s Bank of China (PBOC), conducted the Medium-Term Lending (MLF) operation on Friday.
Key Details:
Issues 1-year MLF at 3.25% vs 3.25% previously.
Injects CNY 200 bln via one-year MLF.
The second phase of targeted RRR cut released about CNY 40 bln.
Funds released from MLF injection and targeted RRR cut offset factors including tax payment period to keep banking system liquidity reasonably ample.
The PBOC cash injections are seen as an effort to stimulate the dwindling economic prospects, especially after Thursday’s terrible Chinese activity numbers. Therefore, the hopes of some improvement in the Chinese economy, courtesy of the PBOC stimulus, are seen benefiting the Chinese Yuan.
However, the main driver behind the Yuan strength vs. the US dollar remains the renewed hopes of a US-China trade deal. USD/CNY trades 0.25% lower at 7.0065, having hit day’s high at 7.0208 and day’s low of 7.000.
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