MNI PBOC WATCH: LPR Held As PBOC Focuses On Global Yuan

The Loan Prime Rate (LPR) was left unchanged on Friday as the People’s Bank of China intensified efforts to internationalise the yuan, amid growing foreign interest in yuan-denominated assets and rising overseas investment by Chinese firms.

The LPR was held at 3.0% for the one-year term and 3.5% for five-year and longer maturities, after both were cut by 10 basis points in May following the PBOC’s 10bp reduction to the 7-day reverse repo rate to 1.4% on May 8 and a 50bp reserve requirement ratio cut on May 15. Today’s decision was largely anticipated. (See MNI PBOC WATCH: June LPR To Hold, Ample Liquidity Seen)

BOND EXPANSION

PBOC Governor Pan Gongsheng on Wednesday unveiled new measures at the Lujiazui Forum in Shanghai to accelerate yuan internationalisation, including new offshore products, expanded cross-border capital channels and further financial market opening.

Authorities will allow Chinese firms to issue yuan-denominated offshore bonds in the Shanghai Free Trade Zone – referred to as Mingzhu bonds – adding to existing Dim Sum transactions in Hong Kong and Panda bonds in mainland China. Mingzhu bonds will offer a new option for overseas investors to hold yuan assets and support the currency’s international role.

MNI reported in May that the Panda bond market is set to double in size, driven by low domestic interest rates and Beijing’s policy push to globalise the yuan. Issuance from emerging markets, including Brazil, is expected to grow as trade and financial ties with China deepen. (See MNI: Panda Market Growth Seen Luring Brazil, Other EM Issuers)

YUAN INTERNATIONALISATION

Despite a still-controlled capital account, China is intensifying its efforts to raise the yuan’s role in global investment and commodity pricing as confidence in the U.S. dollar wanes amid rising American debt and trade protectionism.

Pan also announced the PBOC is advancing yuan foreign exchange futures trading, a move seen as boosting international demand by enabling better FX risk hedging, expanding yuan asset allocations, and increasing yuan use in cross-border trade and investment.