China lowers MLF interest rate to reduce financing costs

BEIJING - China's central bank on Thursday lowered the medium-term lending facility (MLF) interest rate to decrease the borrowing costs of the real economy.

The People's Bank of China (PBOC) on Thursday also pumped 200 billion yuan ($28.04 billion) into the market via the MLF, which will mature in one year at an interest rate of 2.3 percent, 20 basis points lower than the previous level.

This MLF operation, normally conducted in the middle of a month, came as the second such initiative in July 2024.

"Financial institutions have much more liquidity demand near the end of the month, adding to upward pressures on the interest rates of the monetary market," said Wen Bin, chief economist at China Minsheng Bank, in explaining the reason for the PBOC's additional MLF operation this month.

This MLF tool was introduced in 2014 to help commercial and policy banks maintain liquidity by allowing them to borrow from the central bank using securities as collateral.

The PBOC already cut the interest rate of seven-day reverse repos on Monday. The loan prime rate, which is the country's market-based benchmark lending rate, has also dropped for both one-year and over-five-year terms.

Analysts said recent interest rate declines, especially those for corporate loans and mortgages, will help further reduce the burden on the real economy and stimulate effective demand.

These moves indicate that the central bank will maintain reasonable and sufficient liquidity to help consolidate economic recovery, Wen said.