BEIJING - China's central bank on Wednesday further lowered the interest rate of its medium-term lending facility (MLF) loans by 20 basis points amid a slew of monetary policy maneuvres to mitigate impact of COVID-19 on the world's second largest economy.

The People's Bank of China (PBOC) lowered the rate of 100 billion yuan (about US$14.2 billion) in one-year MLF to financial institutions to 2.95 percent, compared with 3.15 percent on the previous operation.

The PBOC lowered the rate of 100 billion yuan (about US$14.2 billion) in one-year MLF to financial institutions to 2.95%, compared with 3.15% on the previous operation

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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.

No MLF loans are set to mature on Wednesday.  

The cut came after the central bank trimmed the interest rate of seven-day reverse repos by 20 basis points on March 30 to lower lending costs, which was seen as a sign of strengthening counter-cyclical adjustments in face of production resumption at home and a worsening external economic environment.

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The reduction in cash that lenders must hold as reserves is expected to unleash around 200 billion yuan of long-term capital into the market, according to the central bank.

A 50 basis-point reduction on the reserve requirement ratio for small and medium-sized banks was also implemented

Market analysts expect the lowered rate for MLF to be followed by a cut in the country's benchmark loan prime rate (LPR), which is slated to be updated on April 20.

Wen Bin, a chief researcher with China Minsheng Bank, said the one-year LPR could be lowered by 20 basis points to 3.85 percent, while the five-year LPR is expected to go down by 10 basis points to 4.65 percent.

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In March, China's consumer price index, a main gauge of inflation, retreated rapidly and suggested the downward inflection point may have appeared, paving the way for more flexible and moderate monetary policies, Wen said in a research note.

He said the monetary policy tools to be adopted by the PBOC could be more about price than quantity as earlier quantitative moves by the central bank in ensuring reasonably sufficient liquidity had worked well in boosting social financing last month.

The PBOC has pledged to keep liquidity at a reasonable and ample level, push for the reform of LPR, China's new market-oriented benchmark lending rate and navigate banks to surrender part of their profits to the real economy and lower borrowing costs to ease the financing strain for smaller businesses. 

With more positive signs in March, the COVID-19 impact on the Chinese economy would be short-lived, according to the central bank.