Central Bank of China adds 200 billion yuan to beef up liquidity, retains interest rates

The Chinese central bank supplied 200 Billion Yuan ($28.60 bBillion) through its medium-term lending facility on Friday. It is the central bank’s move to (second time this year) beef up economic activity while keeping interest rates at its current levels.

The markets were surprised to the bank’s move to add long-term funds as it had already stuck in funds in the last week. Traders see the cash injection as a response to tighter liquidity in the interbank market from Thursday which increased borrowing costs.

Nie Wen, economist at Hwabao Trust in Shanghai said the newly-added fund via MLF loans was to compensate for the low liquidity.

“But at least it has to release liquidity to support economic growth, especially after October’s sluggish credit lending data,” Nie furthered.

The People’s Bank of China (PBOC) said on Friday the interest rate on 1-year MLF loans remained at 3.25%.