THE People’s Bank of China has queried some banks on their demand for medium term lending facility (MLF) loans later in July, multiple sources with direct knowledge of the matter told Reuters on Friday.

    China’s central bank has increasingly relied on MLF loans to guide medium-term interest rates and manage liquidity in the banking system. They are typically for periods from three months to one-year long.

    More broad-based easing tools such as cuts to banks’ reserve requirement ratios release too much liquidity into the banking system at a time when policymakers are trying to manage rising credit risks and avoid sharp yuan depreciation, analysts said.

    “The MLF is a frequently employed monetary instrument, and financial institutions can indicate their demand for any maturities at any time,” said the central bank’s press office in an emailed statement, without confirming or denying it had made inquiries.

    “The central bank comprehensively considers liquidity conditions in the banking system and other factors when choosing the amount to offer, in order to maintain banking sector liquidity at a sufficient and reasonable level and guide financial institutions to increase support towards key or weak economic sectors.

    “Therefore, the central bank inquiring on financial institutions’ demand is an everyday form of communication, it does not represent a monetary policy signal,” they said.

    Sources said the loans would be offered July 13 and July 18, when previous MLF loans would come due.

    An editorial in China Securities Journal earlier last week said that a slower increase in money supply was likely in the second half, and the central bank would continue to rely on MLFs to manage banking sector liquidity.(SD-Agencies)