Pedestrians walk past the People's Bank of China (PBOC) headquarters in Beijing, China, March 7, 2016. (QILAI SHEN / BLOOMBERG)

BEIJING - China's central bank cut the interest rate of targeted medium-term lending facility (TMLF) to 2.95 percent on Friday, 20 basis points lower than the previous TMLF.

The TMLF tool was introduced in December 2018 to encourage loans to small and private businesses

The People's Bank of China (PBOC) renewed 267.4 billion yuan (US$37.8 billion) in TMLF operations that came due Friday to maintain liquidity, with the new operation of 56.1 billion yuan.

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Amid the overall downward trend in interest rates, the 20-basis-point cut was to coordinate with previous interest rate reduction of reverse repos and medium-term lending facility, said Wen Bin, a chief researcher with China Minsheng Bank.

This time's fund injection shrank due to the fact that the market liquidity remained reasonable and sufficient thanks to former reserve requirement ratio (RRR) cuts. The financial institutions' current demand for TMLF was weakened, Wen said.

Meanwhile, structural monetary policies such as reloans, rediscounts and targeted RRR have also replaced the role and effect of TMLF, according to the researcher.

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The PBOC is likely to keep the monetary policy flexible and appropriate, and keep the market's liquidity at a reasonable level through open market operations and other measures to effectively reduce the financing costs of the real economy, Wen noted.

The TMLF tool was introduced in December 2018 to encourage loans to small and private businesses.

Large commercial banks, joint-stock banks and major city commercial banks that lend heavily to the real economy and meet macro prudent requirements can apply for the TMLF.