This Sept 24, 2019 photo shows the headquarters of China’s central bank – the People's Bank of China – in Beijing. (PHOTO / VCG)

SHANGHAI - China’s central bank cut the interest rate on its medium term loans on Monday as policymakers try to reduce the economic shock from the noval coronavirus outbreak that is severely disrupting business activity.

The People’s Bank of China (PBOC) said it was lowering the rate on 200 billion yuan (US$28.65 billion) worth of one-year medium-term lending facility (MLF) loans to financial institutions by 10 basis points to 3.15 percent from 3.25 percent previously.

The PBOC also said in the statement that it injected 100 billion yuan of reverse repos to financial institutions

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No MLF loans had been set to mature on Monday.

Earlier this month the PBOC lowered the interest rates on reverse repurchase agreements by 10 bps.

The PBOC also said in the statement that it injected 100 billion yuan of reverse repos to financial institutions on Monday, when a total of one trillion yuan worth of reverse repos are due to expire.

The central bank's move, which was in line with market expectations, aimed to provide longer-term funds with market liquidity remaining sufficient, said Wen Bin, the chief analyst at China Minsheng Bank.

Wen said the move also paved the way for a reduction in the loan prime rate, which was due for release Thursday.

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The central bank is likely to keep the monetary policy flexible and appropriate, and strengthen the counter-cyclical adjustment to effectively reduce the financing costs of the real economy, Wen said, adding that there was still room for the PBOC to lower the benchmark interest rates and reserve requirement ratios.

The MLF tool was introduced in 2014 to help commercial and policy banks maintain liquidity by allowing them to borrow from the central bank using securities as collateral.