The People's Bank of China announced today (25th) that it will conduct a one-year 200 billion yuan (same below) medium-term lending facility (MLF) operation through interest rate bidding, with a winning bid rate of 2.3%, down 0.2 percentage points from the previous time. This is the second MLF operation by the People's Bank of China this month, and the MLF interest rate has been lowered for the first time since August 2023. This additional MLF operation meets the mid-to-long-term funding needs of financial institutions.

According to the report from The Paper, industry experts pointed out that the increased MLF operation came close to the end of the month, and the liquidity demand of financial institutions has increased significantly. There is some upward pressure on the monetary market interest rates. Some traders from participating institutions mentioned that this demand report also considered the amount due next month, and even the possibility of the People's Bank of China selling national bonds. At the same time, this MLF operation was arranged after this month's LPR quote and reflects the intention to dilute the policy color of the MLF interest rate, indicating that the change in the winning bid rate does not have policy signal implications.

The report also quoted relevant experts who said that if all future MLF operations are postponed to the 25th of each month, financial institutions will face new challenges in liquidity management due to the existing MLF still due around the 15th of each month, as well as other factors such as tax periods. However, the People's Bank of China has reserved a number of measures in optimizing the open market operation mechanism, including seven-day reverse repurchase with fixed interest rate and quantity bidding method to better meet the needs of institutions, setting up temporary regular and reverse repurchase operations to respond to market emergencies, and preparing to buy and sell national bonds, etc. It is expected that the People's Bank of China will continue to make comprehensive use of the above tools to maintain reasonable and sufficient liquidity, guide market interest rates to run smoothly around the central bank's policy interest rates, and demonstrate a determined attitude to consolidate the good trend of economic recovery.