(Yicai Global) Feb. 15 -- The People’s Bank of China has expanded the size of its medium-term lending facility for a third consecutive month, thereby helping banks to provide loans and support growth.

Experts said the increase in medium-term liquidity means cuts in interest rates and the reserve requirement ratio will not be needed just yet, given the economic recovery that is already underway in the first quarter.

The PBOC said today that it was keeping the rate on CNY499 billion (USD73.1 billion) of one-year MLF loans unchanged at 2.75 percent to maintain liquidity in the banking system. CNY300 billion worth of loans matured this month, so today’s announcement represents a net injection of CNY199 billion (USD29 billion).

Expanding the MLF operations will supplement the banking system’s liquidity in the medium and long term as well as enhance banks’ lending capability, market insiders told Yicai Global, adding that it will help to curb the upward tendency in interest rates. It will also stabilize market expectations, they said, which will enable banks to provide the real economy with credit support at a lower cost.  

The central bank revealed on Feb. 10 that new yuan loans in January totaled CNY4.9 trillion (USD716.7 billion), a year-on-year rise of CNY922.7 billion (USD135 billion) and a record high for loan issuance in a single month. 

The increase in new loans came amid a surge in corporate demand for funds and government policies to support economic growth, but it also used up a lot of the banking system’s liquidity. Further loan issuance is vital to maintain the recovery’s momentum, and the expansion in MLF operations this month will directly restore banks’ medium- and long-term liquidity, said Wang Qing, chief macroeconomic analyst at Golden Credit Rating. 

The PBOC also conducted a seven-day reverse repurchase operation today worth about CNY203 billion (USD29.7 billion), just as reverse repos worth CNY641 billion expired. 

Despite the MLF expansion, market analysts said it is still possible that there may be cuts in interest rates and the reserve requirement ratio this year, but any reductions are less likely to happen in the short term as the economy has already begun to pick up. 

China’s monetary policy will continue to remain prudent but loose, said Wen Bin, chief economist at China Minsheng Bank. He predicted that there will be two RRR cuts this year, possibly in April and October. 

Editors: Liao Shumin, Tom Litting