(Yicai Global) June 14 -- After cutting the seven-day reverse repurchase rate yesterday, China’s central bank also lowered the interest rates on its standing lending facility to support the temporary liquidity needs of commercial banks.

The People’s Bank of China trimmed the borrowing costs on its overnight, seven-day, and one-month SLF by 10 basis points each to 2.75 percent, 2.9 percent, and 3.25 percent, respectively, it said late yesterday.

The PBOC cut the seven-day reverse repurchase rate to a new low of 1.9 percent from 2 percent earlier in the day when it injected CNY2 billion (USD279.4 million) through the repos to maintain the reasonable and sufficient liquidity of the financial system. It was the first cut in 10 months.

Adjusting the SLF and reverse repo rates together can better guide market interest rates to fluctuate around the desired level, thereby maintaining reasonable and sufficient liquidity and coordinating monetary policy tools, Pang Ming, chief economist at Jones Lang LaSalle China, told Yicai Global.

The SLF was launched in 2013 to meet the liquidity needs of financial institutions. Through the facility, they can borrow from the PBOC using qualified bonds and credit assets as collateral rather than going to the market at higher rates. The SLF rate can be considered the ceiling of the interest rate corridor.

May’s financial data released yesterday by the PBOC missed expectations. In particular, China’s newly-added social financing plunged CNY1.31 trillion (USD182.9 billion) to CNY1.56 trillion last month from a year earlier.

Recent data show that insufficient demand remains the most significant challenge for the world’s second-largest economy. With the unstable recovery of domestic demand and increasing pressure on external demand, China’s real economy still needs the protection of macroeconomic policies, Wen Bin, chief economist at China Minsheng Bank, told Yicai Global. 

To meet the temporary liquidity needs of financial institutions, the PBOC issued a total of CNY532 million (USD74.3 million) of overnight SLF in May, with the SLF balance at the end of last month reaching CNY530 million, data previously released by the central bank showed.

Editors: Dou Shicong, Futura Costaglione