(Yicai) Sept. 15 -- China’s central bank simultaneously cut a short-term policy interest rate and the reserve requirement ratio, thereby helping banks to extend loans and support economic growth.

The People’s Bank of China lowered the 14-day reverse repurchase rate by 20 basis points to 1.95 percent today, it said on its website. The PBOC also injected CNY139 billion (USD19.1 billion) of reverse repos into the financial system, CNY34 billion (USD4.6 billion) of which were 14-day loans.

The move should be seen as a delayed response after other key rates were cut earlier this year, said Dong Ximiao, chief researcher of CMB-China Unicom Consumption Finance.

The PBOC also announced yesterday that it would today lower the RRR for financial institutions by 25 basis points to 7.4 percent. It was the second such reduction of the year, following a 25-bps cut on March 27.

The pared RRR will guarantee ample market liquidity, provide financial support for the real economy, and further drive down financing costs, said Pang Ming, chief economist and head of research at real estate services firm Jones Lang LaSalle China.

The lower 14-day reverse repo rate is mainly intended to meet the needs of financial institutions for short-term funds at the end of the quarter amid fluctuations due to short-term factors, said Zhou Maohua, a macro researcher at the financial markets department of China Everbright Bank.

The PBOC also injected CNY591 billion (USD81 billion) of medium-term lending facility loans into the financial system today, a net addition of CNY191 billion, but kept the rate unchanged at 2.5 percent. It also injected CNY34 billion via 14-day reverse repos at 1.95 percent, down from 2.15 percent.

Feeding in more liquidity through MLFs indicates that the government is keen to speed up credit easing, most likely boosting new lending and social financing this month, according to analysts.

The liquidity added through MLF loans combined with the RRR cut signals support for banks to lend more and consolidate the economic recovery, said Wang Qing, chief macro analyst with Golden Credit Rating International.

Chinese banks had already extended CNY1.36 trillion (USD187 billion) of new yuan loans in August, a big increase on the prior month’s CNY350 billion, while total social financing, a broad gauge of credit and liquidity, surged to CNY3.12 trillion, up from CNY530 billion.

The chances of a further lowering of the RRR and interest rates is unlikely in the short term as policies adjustments feed through and the economy picks up, Zhou said, adding that if monetary policy becomes too loose, it could give rise to risks.

Whether the PBOC cuts the MLF rate again depends on how the economy and the real estate market perform in the run-up to the end of this year, but another cut is still possible, Wang added. Commodity prices in China will stay low for some time, creating the conditions for a further reduction in interest rates.

Editor: Kim Taylor