(Yicai) Nov. 25 -- As this year's largest medium-term lending facility matured, the People’s Bank of China withdrew CNY550 billion (USD75.9 billion) in such loans, shifting its focus toward shorter-term liquidity tools. Analysts anticipate that the central bank will leverage its expanding policy toolkit to ensure sufficient liquidity in the financial system through the year-end.

The PBOC today launched a one-year MLF operation of CNY900 billion to partly offset the maturity of CNY1.45 trillion (USD200.1 billion) in such medium-term policy loans, per its website. The rate was kept unchanged at 2 percent. This marks the fourth straight month of net MLF liquidity withdrawal, creating space for more flexible measures.

Moreover, the PBOC today launched a seven-day reverse repo operation of CNY249.3 billion at a rate of 1.5 percent, replacing CNY172.6 billion in maturing agreements, resulting in a net increase of CNY76.7 billion.

Market liquidity will remain reasonably abundant as the year draws to an end, said Dong Ximiao, chief researcher of Merchants Union Consumer Finance. While the PBOC reduced MLF liquidity this month, it compensated through new reverse repos, reserve requirement ratio cuts, and treasury bond transactions, Dong explained.

The central bank is coming up with new tools to fine-tune liquidity amid local governments' debt pressures, slowing economic growth, and a weak yuan. Last month, the PBOC debuted a new monetary policy tool known as the outright open market reverse repo facility, allowing the central bank to buy securities from lenders and sell them back more flexibly. The first CNY500 billion facility will mature in six months.

This outright reverse repo can be seen as an early release of medium-term liquidity, said Wang Qing, chief macro analyst at Golden Credit Rating. The shrinking MLF balance does not imply reduced medium-term liquidity, Wang added.

Looking ahead, the PBOC will continue to inject medium and long-term liquidity into the market through timely RRR cuts, treasury bond trading, as well as outright reverse repo and MLF operations to align with the issuance of local government bonds, Wang said, adding that the central bank could cut the RRR by 0.5 percentage points before the end of the year.

On Sept. 27, the PBOC carried out its second RRR cut this year, lowering the deposit ratio for financial institutions by 0.5 percentage points to an average of 6.6 percent.

Editors: Dou Shicong, Emmi Laine