(Yicai Global) June 15 -- The People’s Bank of China has expanded the size of its medium-term lending facility and slashed the interest rate by 10 basis points in its third rate cut this week, thereby helping banks to extend loans and support growth.

The central bank injected CNY237 billion (USD33 billion) of fresh funds into the financial system today, CNY37 billion (USD5.2 billion) more than the amount that matured, and cut the interest rate to 2.65 percent from 2.75 percent, according to a statement on the PBOC website.

The reduction of the MLF’s lending rate will bring medium- and long-term borrowing rates down, which will in turn help banks to downwardly revise the loan prime rate, so as to reduce the cost of social financing and boost demand, Wang Yunjin, senior analyst at Zhixin Investment Research Institute, told Yicai Global.

The MLF rate is tied to the loan prime rate, the benchmark rate for loans to individual borrowers, and therefore it is highly likely that one-year and five-year LPRs will also be trimmed by 10 bps this month, said Ming Ming, chief economist at Citic Securities. The five-year LPR might even have a bigger cut, he added.

China’s credit growth slowed in May as new social financing tumbled 46 percent from a year earlier to CNY1.5 trillion (USD217.3 billion). This stoked market expectations that the central bank will cut rates to ensure ample liquidity in the real economy.

Two days ago, the PBOC trimmed the seven-day reverse repo rate by 10 bps to a record low of 1.9 percent and lowered the overnight, seven-day and one-month rates on its standing lending facility also by 10 bps to 2.75 percent, 2.90 percent and 3.25 percent, respectively.

In the US, the Federal Reserve said yesterday that it will keep the targeted range of Federal Funds unchanged at between 5 percent and 5.25 percent, ending a string of rate hikes that began in March last year.

The Fed will likely start a round of rate cuts in the fourth quarter which will narrow the gap between the monetary policies of China and the US, said Li Chao, chief economist at Zheshang Securities. China boasts more room for looser monetary policies and the reserve requirement ratio and interest rates will be probably be lowered further in the second half, he added.

Editors: Dou Shicong, Kim Taylor