The central bank’s two tools are indeed easy to confuse. Let me sort things out for everyone.

First is the Medium-term Lending Facility, or MLF. This is a type of medium-term funding support the central bank provides to commercial banks and policy banks. In simple terms, the central bank lends money to banks, but with a requirement: banks must use high-credit bonds such as government bonds and central bank bills as collateral. The MLF typically has a term of 3 months to 1 year, so it falls under the medium-term category.

Why does the central bank introduce the MLF? The core purpose is to encourage banks to lend—especially to the “three rural” areas and small micro-enterprises. Banks’ usual approach is “borrow short, lend long,” meaning they use short-term funds to issue long-term loans. This approach has a problem: when short-term funds mature, banks need to borrow again. Frequent operations not only increase costs but also bring greater risk. The MLF addresses this pain point by providing banks with longer-term funds, enabling them to lend long-term more confidently without needing to borrow short-term funds as often.

Next is the Standing Lending Facility, or SLF. This is a tool the central bank created in 2013. The SLF mainly targets policy banks and nationwide commercial banks, providing short-term liquidity support of 1 to 3 months. It also requires collateral in the form of high-rated bonds or quality credit assets.

There are several features of the SLF worth noting. First, it is applied for proactively by financial institutions, not injected proactively by the central bank. Second, it involves one-on-one transactions between the central bank and financial institutions, making it more targeted. Third, its coverage is relatively broad; later, in 2015, the central bank also expanded the SLF to small and medium-sized financial institutions to help them handle seasonal liquidity fluctuations.

When comparing the MLF and SLF, the differences are quite clear. In terms of term, the MLF is medium-term, while the SLF is short-term. In terms of purpose, the MLF is aimed at supporting the development of specific industries—such as the “three rural” areas and small micro-enterprises—whereas the SLF mainly adjusts for short-term liquidity fluctuations. From a policy perspective, the MLF reflects the central bank’s intent to guide the structure of long-term credit, while the SLF is a tool used to stabilize market interest rates. Some people say that the shift from the SLF to the MLF marks a change in the central bank’s monetary policy from quantity-based to price-based, and that assessment is still reasonable.