(Yicai Global) July 17 -- The People’s Bank of China expanded the size of its medium-term lending facility by a modest CNY3 billion (USD418.5 million) today, and the small size of the increase could be a sign that the central bank is about to trim the reserve requirement ratio, analysts said.

The central bank released CNY103 billion (USD14 billion) of fresh funds into the financial system today through MLFs, CNY3 billion more than the amount that matured, but kept the rate unchanged at 2.65 percent, according to a statement on the PBOC website.

The small size of the increase indicates that the PBOC might cut banks’ RRR this month, said Wang Qing, chief macro analyst at Golden Credit Rating International. Considering the demand for funds and the need to boost market confidence in the third quarter, a RRR cut of around 0.25 percentage point is likely to be implemented as soon as this month, he added.

The PBOC also injected CNY33 billion (USD4.6 billion) in seven-day reverse repo operations, CNY31 billion more that the amount that matured, and kept the interest rate at 1.9 percent.

Last month, the PBOC slashed the rates of its MLF and reverse repo operations by 10 basis points for the first time this year. It also cut the RRR by 0.25 percentage point in March reducing the proportion of capital that Chinese financial institutions need to hold in reserve to around 7.6 percent.

It is now time to wait and see what effect these interest rate cuts will have, said Wen Bin, chief economist at China Minsheng Bank. And there are unlikely to be any further reductions in the short term.

China’s gross domestic product expanded 6.3 percent in the second quarter from a year ago, much less than the anticipated 7 percent, according to data released by the National Bureau of Statistics today. Insufficient demand and unstable market expectations have led to a slowdown in economic recovery, market insiders said.

Editors: Dou Shicong, Kim Taylor