China cuts interest rates of MLF, reverse repos

China's central bank on Tuesday cut the interest rates of the medium-term lending facility (MLF) and reverse repos, as part of efforts to strengthen counter-cyclical adjustment and stabilize market expectations.

The move aims to maintain reasonable and ample liquidity in the banking system to fully satisfy the needs of financial institutions, according to the People's Bank of China.

The central bank injected 401 billion yuan (US$55.87 billion) into the market through one-year MLF with an interest rate of 2.5 percent, down from 2.65 percent.

The MLF tool helps commercial and policy banks maintain liquidity by allowing them to borrow from the central bank using securities as collateral.

The central bank also conducted seven-day reverse repos worth 204 billion yuan at an interest rate of 1.8 percent, down from 1.9 percent.

A reverse repo is a process in which the central bank purchases securities from commercial banks through bidding, with an agreement to sell them back in the future.