China avoids cutting rate to keep ammunition for future pressure

China refrained from cutting the interest rate and drained the most cash since 2014 with a one-year policy tool, keeping its powder dry ahead of possible escalation in trade tensions with the US next year.

The People's Bank of China held the interest rate on the one-year medium-term lending facility steady at 2% - a move predicted by nine of out 10 economists surveyed by Bloomberg. The authorities also withdrew a net 1.15 trillion yuan ($158 billion) from the financial system with the tool, the most since 2014.

Earlier this month, policymakers pledged "moderately loose" monetary policy - the first shift in stance in about 14 years - along with "more proactive" fiscal tools to bolster the economy. But so far, they have refrained from announcing any concrete stimulus, reflecting their patience before US imposes the tariffs that President-elect Donald Trump threatened earlier.


"The steady MLF rate is within expectation and we hold on to forecast for cuts by 40-50 basis points in 2025," said Ming Ming, chief economist at Citic Securities Co. The liquidity withdrawal also raises the chance of a cut to banks' reserve-requirement ratio, likely as soon as by year-end, he added.

The PBOC in recent months has downplayed the role of the MLF as the main policy rate, shifting instead to the seven-day reverse repo rate to guide market borrowing costs.

The seven-day rate has stayed unchanged since a 20-basis point cut in late September.