(Yicai) Dec. 15 -- China's central bank revealed the largest CNY800 billion (USD112.7 billion) net injection of medium-term lending facility loans this year to expand liquidity in the banking system before year-end.

The People’s Bank of China conducted CNY1.45 trillion (USD204.2 billion) of MLF loans and CNY50 billion (USD7 billion) of seven-day reverse repos to offset CNY650 billion of MLF loans and CNY197 billion (USD27.7 billion) of reverse repos expiring today to maintain a reasonable abundance of liquidity in the banking system, and hedge the impact of short-term factors, including government bond payments, and to supply medium and long-term base money, the PBOC announced today.

The interest rates remain unchanged at 1.8 percent for reverse repos and 2.5 percent for MLF. The last time China cut the MLF rate was in August with a 15 basis point reduction after a 10 bip decrease in June.

The big liquidity boost could ease banks' medium and long-term pressures and enhance support to the real economy, said Wen Bin, chief economist at China Minsheng Bank.

China is about to issue CNY1 trillion of additional treasury bonds so the central bank greatly hiked the injection of medium and long-term liquidity to control the cost of treasury financing and stabilize the money market, said Wang Qing, chief macroeconomic analyst at Golden Credit Rating.

Market liquidity has been tight recently due to a high scale of social financing, Wang said. Yields of one-year negotiable certificates of deposits offered by commercial banks continue to be higher than the MLF rate, which should directly spur demand for MLF operations. The average rate of AAA-grade CDs rose to 2.59 percent last month and climbed to 2.66 percent yesterday, data show.

As the year draws to an end, many factors determine interbank market liquidity so the central bank may moderately increase MLF loans to meet market demand, said Zhou Maohua, macro researcher at China Everbright Bank.

Experts have no consensus about the future use of other monetary policy tools.

There is no need to cut policy rates in the short term as one-year and five-year loan prime rates have declined by 20 basis points and by 10 bips, respectively, this year, and the effect is not fully priced in yet, Wen said.

However, Wang from Golden Credit Rating said that an across-the-board reserve requirement ratio cut may happen in the short term. The rationale, guided by historical data, is that when the MLF balance exceeds CNY5 trillion, the central bank is more likely to cut the RRR, the analyst said. This month, the balance has reached CNY7.1 trillion.

Editor: Emmi Laine