THE central bank extended fresh short- and medium-term loans yesterday but kept the borrowing cost unchanged, as it seeks to maintain adequate liquidity in a slowing economy and ease a potential crunch ahead of the Chinese New Year.

The People’s Bank of China (PBOC) said on its website the interest rate on one-year MLF loans remained at 3.25 percent, unchanged from the previous operations. It injected 300 billion yuan (US$43.51 billion) via the liquidity tool.

Separately, the PBOC also extended 100 billion yuan of 14-day reverse repos with the interest rate unchanged at 2.65 percent.

There is no maturing MLF loan or reverse repo yesterday.

In a statement, the central bank said the injection was meant to “offset impact from factors including tax payment and cash demand” and ensure that banking system liquidity was “reasonably ample” before the week-long Lunar New Year holidays kick off next Friday.

Rising cash demand from companies and households for the Lunar New Year holiday, a flood of special bond issuance by local governments and corporate quarterly tax payments have all combined to drain funds from the banking system. Some analysts expect the liquidity gap could amount to as much as 2.8 trillion yuan.

The MLF now acts as a guide for the PBOC’s new lending benchmark Loan Prime Rate (LPR), with the monthly fixing due next Monday.

The LPR is a lending reference rate set monthly by 18 banks. The PBOC revamped the mechanism to price LPR last August. Since then, the one-year LPR has been lowered by a total of 10 basis points in an attempt to lower corporate borrowing costs and support the economy.

(SD-Agencies)