(Yicai Global) Dec. 7 -- The People’s Bank of China has increased its support to small and rural companies by cutting the interest rates on its relending facility by 0.25 percentage point from today, Yicai Global learned from local financial regulators. It comes a day after the central bank slashed lenders’ reserve requirement ratio by 0.5 percentage point effective Dec. 15.

Today’s move is part of a package of policies, analysts said. In the face of a complex domestic economic situation, the central bank tends to use structural instruments for targeted support while keeping overall liquidity at an appropriate amount. The three-month relending rate now stands at 1.7 percent, that for six months is 1.9 percent and the 12-month rate is 2 percent.

The PBOC's monetary policy is both targeted and effective, said Wen Bin, chief researcher at China Minsheng Bank. Agriculture, farmers and rural areas, as well as micro and small firms remain weak areas of economic development and more enhanced financial support is needed, he said.

The central bank' s effort to mitigate real economy weakness through targeted rate cuts will help stabilize employment and accelerate the recovery of domestic demand, Zhou Maohua, analyst at China Everbright Bank's department of financial markets, told Yicai Global. Structural tools can help improve the precision, quality and effectiveness of policies, and better balance growth with risk prevention, he added.

There were around CNY1.47 trillion (USD231 billion) in outstanding reloans to micro, small and rural companies as of the end of September, Wen said. Another CNY300 billion worth is expected to be released in the fourth quarter, he added.

The PBOC cut the relending facility to small and rural firms by 0.25 percentage point in February and July last year. The results were quite satisfactory, said Zhou. They effectively raised the efficiency of policy transmission, stabilized the confidence of market entities and promoted the steady recovery of domestic production.

Editors: Xu Wei, Kim Taylor