(Yicai) June 17 -- The People’s Bank of China reduced the size of its medium-term lending facility by CNY55 billion (USD7.6 billion) today, and kept the interest rate unchanged for the 10th straight month, indicating that the central bank remains confident that there is sufficient liquidity in the banking system.

The central bank released CNY182 billion (USD25 billion) worth of fresh funds into the financial system today through one-year MLF operations, and kept the rate at 2.5 percent, according to a statement on the PBOC’s website. It replaces CNY237 billion worth that expired today.

The PBOC also injected CNY4 billion (USD551.3 million) in seven-day reverse-repos into the economy and kept the interest rate at 1.8 percent. No reverse repos matured today.

The reduction in MLF loans has to do with weaker demand for credit, said Wang Qing, chief macro analyst at Golden Credit Rating. There is adequate liquidity in the banking system and less demand for loans.

Demand for the MLF facility should increase in the third quarter as banks extend more loans and as the government continues to issue large quantities of bonds, Wang said. The size of MLF loans should then be expanded.

It is not urgent for the central bank to lower this key policy rate seeing as first-quarter economic growth beat expectations and the effect of policies in the second quarter is still being observed, he said. However, this might be an option in the third quarter should inflation stay low and economic growth call for a greater boost.

The fact that the MLF interest rate remained the same this month indicates that the benchmark loan prime rate will also stay untouched.

Editors: Dou Shicong, Kim Taylor