(Yicai) July 25 -- China's central bank has conducted a very rare second medium-term lending facility operation this month, indicating a further intensification of its monetary policy effect.

The People's Bank of China today released CNY200 billion (USD27.6 billion) worth of funds into the financial system via one-year MLF operations to maintain reasonable and ample liquidity in the banking system at the end of the month, and lowered the interest rate to 2.3 percent from 2.5 percent.

On July 15, the PBOC injected CNY100 billion of one-year MLF loans into the financial system, with an interest rate of 2.5 percent, to replace CNY103 billion of lending that expires this month.

The PBOC also conducted CNY235.1 billion of seven-day reverse repurchase operations today, keeping the rate unchanged at 1.7 percent. They offset CNY49 billion (USD6.8 billion) expiring today.

The reason for the second MLF loan injection is that the PBOC is shifting the focus of its policy rates to the short from medium term, Dong Ximiao, chief researcher at Merchants Union Consumer Finance, told Yicai. Since this MLF operation was completed after the PBOC announced this month's loan prime rate cut, the change in the operation rate does not carry any policy signal, Dong noted.

On July 22, the PBOC lowered the interest rate of seven-day reverse repos, as well as the one-year and five-year LPR, by 10 basis points, indicating that the seven-day repo replaced the MLF as the primary tool to regulate the market's benchmark interest rate.

Given its latest moves, the PBOC will likely delay the timing of its monthly MLF operations to the end of the month in the future, a source close to the central bank told Yicai. However, since the existing MLF loans will continue to mature in the middle of the month, the potential delay would create new challenges for the liquidity management of financial institutions.

The PBOC's additional MLF operation today also takes into account the need to preemptively offset next month’s maturing amount to meet the liquidity needs of financial institutions, the source added. Some CNY401 billion of MLF loans will mature on Aug. 15.

Editors: Dou Shicong, Futura Costaglione