China surprises by keeping MLF rate steady, focus now on next week's LPR

SHANGHAI, May 15 (Reuters) - China’s central bank unexpectedly kept the interest rate on its medium-term funding for financial institutions steady on Friday, even as authorities have stepped up the pace of monetary easing recently to combat the worst economic slowdown in decades.

The People’s Bank of China (PBOC) said it was maintaining the one-year medium-term lending facility (MLF) loans to financial institutions at 2.95%, unchanged from the previous operations.

The interest rate was already at the lowest level since the liquidity tool was introduced in September 2014.

The MLF now acts as a guide for the PBOC’s lending benchmark loan prime rate (LPR), which is announced on the 20th of each month. The steady MLF rate may raise uncertainty about whether some commercial banks would adjust the LPR this month to help keep virus-hit companies afloat.

The PBOC said in an online statement that it was injecting 100 billion yuan ($14.10 billion) through the liquidity tool, adding that the second phase of a targeted reserve requirement ratio (RRR) cut came into effect on the day, freeing up about 200 billion yuan of long-term liquidity.

The central bank also said it has skipped reverse repo operations on Friday. ($1 = 7.0938 Chinese yuan) (Reporting by Winni Zhou and Andrew Galbraith Editing by Shri Navaratnam)