China’s central bank announced that it will inject one-year liquidity to domestic lenders on Sept 25, marking another delay amid a broad overhaul of its policy toolkit.

The People’s Bank of China (PBOC) will renew the medium-term lending facility (MLF) funds maturing Sept 18, later this month, according to a statement on Wednesday. It postponed the operations in August to around the 25th, from its previous practice of around mid-month. In July, the central bank announced an MLF rate cut towards the end of the month.

Meanwhile, the central bank injected 80.7 billion yuan of liquidity on a net basis, via the seven-day reverse repurchase notes. 

The PBOC is revamping its policy framework in a shift that could allow it to operate more like global peers and influence market borrowing costs more effectively. It has been downplaying the role of the MLF as a key rate, while transitioning to using the seven-day reverse repo notes as the main policy lever to deliver a clearer signal. 

The MLF rate was last lowered on July 25 by the most since 2020, the latest step in a string of rate reductions to improve the economy’s faltering momentum. 

China’s slowdown has been alarming enough to threaten this year’s growth target of around 5%. Industrial output expanded in August at a weaker pace for the fourth month, the longest stretch since September 2021, while consumption and investment decelerated more than economists had expected. 

Risks to the outlook are increasing, as deflationary pressure become more entrenched in a sign of weak domestic demand, even though export strength continued to hold up. The central bank signalled in a rare statement after disappointing credit data for August that fighting deflation would become a higher priority, and indicated more monetary easing ahead. 

  - Bloomberg