As widely expected, the PBoC left the medium-term lending facility (MLF) rate unchanged at 2.3% for August, after cutting it by 20 basis points in July. The PBoC also withdrew CNY 101 billion net from the banking system through the facility. One reason for the withdrawal is muted demand for MLF loans from banks. This is because the MLF rate is more expensive than the average funding cost of currently around 2% that is charged on interbank loans, as Commerzbank FX strategists note.
Canada imposes tariffs on China
“The MLF rate announcement was originally scheduled for August 15, but the PBoC postponed the announcement to yesterday, five business days after the August 20 release date of the loan prime rates (LPRs). We will see if the PBoC postpones the MLF rate announcement again in September or if it permanently shifts the date to the 25th of every month as the central bank downplays the role of the MLF rate.”
“Canada has announced that it will impose new tariffs of 100% on electric vehicles and 25% on steel and aluminum imports from China. The new tariff rates are in line with those imposed by the United States in May of this year and are significantly higher than the European Union (EU) tariffs on Chinese electric vehicles, which range from 9% to 36.3%. Canada has also launched a 30-day consultation on other sectors, including batteries, semiconductors, solar products and critical minerals.”
“In forex trading, USD/CNY rose just 10 pips to above 7.12 and offshore USD/CNH gained 70 pips to also trade above 7.12.”
