(Yicai Global) March 15 -- The People's Bank of China bucked market expectations for a rate cut today, injecting a net CNY100 billion (USD15.7 billion) of fresh funds via renewed medium-term lending facility loans at the rate same as the previous operation.

The PBOC today injected CNY200 billion worth of one-year MLF loans at a 2.85 percent rate to offset CNY100 billion due to expire the same day. The central bank also conducted CNY10 billion (USD1.6 billion) worth of seven-day reverse repurchase agreements at a 2.1 percent rate to replace CNY10 billion that was due to mature.

This month's renewed MLF operation is intended to ease the credit environment and offset the recent rise in market rates, Wang Qing, chief macroeconomic analyst at rating agency Golden Credit Rating International, told Yicai Global.

The fresh MLF loans can directly replenish banks' medium- and long-term liquidity, enhancing their ability to lend, he added.

Market participants had expected the PBOC to lower MLF rates given last week’s gloomy financial data for February. Chinese banks extended CNY1.23 trillion (USD192.9 billion) of new yuan-denominated loans last month, down CNY125.8 billion on the year, with medium-and long-term loans for residents down CNY45.9 billion (USD7.2 billion) from the end of January in the first decline since records began in 2007.

But analysts said future rate and reserve requirement ratio cuts are still possible. The lingering domestic pandemic will compound the gloomy first-quarter economic situation, according to Ding Shuang, chief economist for China and North Asia at Standard Chartered Bank. A 50-basis point reduction in the RRR is possible this month, followed by a 10 basis points cut in the MLF rate next month, Ding said.

Another 10 bips cut in the MLF rate is likely in the second quarter, along with an RRR cut for all lenders, said Wang from Golden Credit Rating International. Weaker consumption and the cooling property market means there has not been any fundamental mitigation of downward economic pressure since last year's second half, Wang noted, adding that the recent resurgence of Covid-19 will affect the domestic economy in the short term.

The PBOC lowered the MLF operational rate by 0.1 percentage point to 2.85 percent in January. It also reduced financial institutions' RRR by 0.5 point last December, with their weighted average RRR at 8.4 percent after the cut.

Editors: Dou Shicong, Tom Litting