China's central bank extended 200 billion yuan through its medium-term lending facility on Friday, the second time it has done so this month, while keeping the lending rate unchanged.

The move to add long-term funds caught the market off guard as the central bank had already injected funds last week. Several traders said the cash injection was likely a response to tighter liquidity in the interbank market from late Thursday, which pushed up borrowing costs.

Nie Wen, economist at Hwabao Trust in Shanghai, said the fund injection via MLF loans was to make up for the shortfall in liquidity even after multiple reserve requirement ratio (RRR) cuts so far this year. In the short term, high consumer inflation was keeping policymakers from immediately cutting interest rates, he said.

"But at least it has to release liquidity to support economic growth, especially after October's sluggish credit lending data," Nie added.

The People's Bank of China (PBOC) said on its website on Friday the interest rate on one-year MLF loans remained at 3.25%, the same as previous operation. Last week, the central bank cut the interest rate on MLF loans for the first time since February 2016, but only by a marginal 5 basis points. It also injected 400 billion yuan into financial institutions via the liquidity tool.