Medium-term lending facility is a monetary policy tool for the central bank to provide medium-term base money. Medium-term lending facilities have an impact on financial institutions' balance sheets and market expectations by adjusting medium-term financing costs.
So as to guide financial institutions to provide low-cost funds in line with national policies to the real economy sector and promote the reduction of social financing costs.
Simply put, the medium-term lending facility means that the central bank lends money to commercial banks, and commercial banks return the money and pay an interest at the same time. The loan interest rate given by the central bank for this loan will indirectly affect the loan interest rate of commercial banks.
If the central bank wants commercial banks to lend to the market at low interest rates, it will charge less interest; If commercial banks want to lend to the market at a high interest rate, they must pay more interest, thus indirectly controlling the social financing cost.
Generally speaking, the medium-term lending facilities have played a role in supplementing the liquidity gap, which is conducive to maintaining a neutral and moderate liquidity level, in the case of a phased slowdown in the delivery of base currency through foreign exchange channels.
The difference between medium-term lending facilities and reverse repurchase
The form of reverse repurchase by the central bank: the central bank buys securities from primary dealers;
MLF is issued by pledge, and it is necessary to provide high-quality bonds such as government bonds, central bank bills, policy financial bonds and high-grade credit bonds as qualified pledges.
2, the main role is different:
Reverse repurchase by the central bank: releasing liquidity to the market
The role of MLF: to play the role of medium-term policy interest rate, to influence the balance sheet and market expectation of financial institutions by adjusting the cost of providing medium-term financing to financial institutions, to guide them to provide low-cost funds to the real economic sector that conforms to the national policy orientation, and to promote the reduction of social financing costs.
3. Different time periods:
Central bank reverse repurchase: short-term behavior, usually one day, three days, seven days;
MLF duration: generally longer, ranging from three months to six months.
4, the operation mode is different:
Reverse repurchase by the central bank: the central bank lends money to commercial banks, and commercial banks pledge bonds to the central bank;
MLF: It will be conducted through bidding.