Central bank capital injection eases banking liquidity tensions

China's monetary authority eased liquidity tensions in the banking system when the innovative capital injection measures took effect on Wednesday, which will not change the regulator's determination in the long-term goal of financial deleveraging in a tightening regulatory environment.

A net 400 billion yuan ($63.32 billion) was released on Wednesday from the central bank's reserve of commercial banks' deposits, with another freeing of 900 billion yuan to erase lenders' liability to the central bank through the Medium-term Lending Facility (MLF).

This monetary policy operation - a reduction of the reserve requirement ratio (RRR) by 1 percentage point but in an innovative way, is expected to supplement liquidity especially for small and medium-sized banks without making overall monetary policy too loose, according to experts.