What to make of Beijing's liquidity move

The People's Bank of China provided standing lending facility (SLF) of 100 billion yuan ($16.28 billion) each with a three-month tenor to China's five biggest banks (Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank, Bank of China and Bank of Communications) this week.

The PBoC (or China's central bank) introduced the SLF in early 2013 as an additional means to provide liquidity to specific institutions (mostly policy banks and national commercial banks), typically with a tenor of one to three months.

In size, this operation would be roughly equivalent to a 45 basis point reserve requirement rate (RRR) cut for all banks. It increases the money base. If not constrained by caps on loan-to-deposit (LTD) ratios or other administrative regulation, it would increase the banks' ability to extend credit. But several of the large banks will be at least in part constrained in their lending by the current maximum LTD ratios applied to them.