Next Monday's outright reverse repo operation of 500 billion yuan, with a reduced volume of outright reverse repos in March

People’s Bank of China decides to conduct 500 billion yuan of 6-month outright reverse repos on March 16, following a 6 trillion yuan operation on March 13.

Data shows that 600 billion yuan of 6-month outright reverse repos mature in March. Therefore, the PBOC’s operation of 500 billion yuan of 6-month outright reverse repos on March 16 indicates a reduction in the scale of these operations for the month, with a net decrease of 1 trillion yuan.

In March, 300 billion yuan of 3-month outright reverse repos have already been reduced by 200 billion yuan, meaning that the total net withdrawal of these two maturity types in the month amounts to 300 billion yuan.

Wang Qing, Chief Macro Analyst at Orient Securities, pointed out that this may be related to the high net liquidity injection of 1.9 trillion yuan in the first two months of the year, with liquidity remaining relatively abundant after the Spring Festival.

Social Financing Conditions Remain Relatively Loose

Wang Qing analyzed that the net withdrawal of outright reverse repos in March does not mean the PBOC is tightening medium- and long-term liquidity. Moving forward, the central bank will use a combination of various policy tools to maintain stable and ample liquidity. This is to ensure funding for key projects, as the new local government debt quota for 2026 has been allocated early. This means government bond issuance will continue at a high level. Additionally, by October 2025, 500 billion yuan of new policy financial instruments will be issued, and the government work report in March announced the issuance of 800 billion yuan of new policy financial instruments mainly to expand investment. These measures will continue to drive large-scale lending in March. Data shows that in February, corporate medium- and long-term loans for investment increased significantly by 350 billion yuan year-on-year, the largest increase in nearly three years. All these factors will to some extent tighten liquidity.

Wang Qing suggested that to address potential liquidity tightening, a combination of policy tools could be used to continuously inject medium- and long-term liquidity into the market, guiding liquidity to remain relatively stable and ample. This will support government bond issuance, help financial institutions strengthen credit support to the real economy, and signal that monetary policy will continue to be moderately easing.

Some industry experts also noted that the PBOC will continue to implement moderately loose monetary policies this year. Early in the year, multiple incremental policies involving structural monetary tools were announced, including lowering policy rates, expanding the scale and scope of support, and improving policy elements. Meanwhile, the liquidity in the banking system remains ample, and social financing conditions are relatively loose.

Industry experts pointed out that open market operations are just one way the PBOC injects liquidity. The People’s Bank emphasizes a mix of short- and long-term tools, flexibly adjusting liquidity. Since the beginning of the year, the PBOC has net injected about 2 trillion yuan of medium- and long-term funds through various tools.

Experts: Focus More on Price Perspectives in PBOC Open Market Operations

Industry experts stated that because residents have been gradually depositing cash withdrawn before the Spring Festival back into banks after the holiday, increasing available funds for banks, and since March is typically a month of higher fiscal expenditure at the end of the quarter, local bond issuance during the “Two Sessions” is usually slower, reducing banks’ fund consumption. The PBOC’s monetary policy operations will be flexible and precise, adjusting tools based on liquidity and market conditions to support steady and healthy market development.

Experts also noted that in recent years, China has shifted further toward a price-based monetary policy framework. Open market operations now mainly serve interest rate regulation goals, and this trend is unlikely to change. Looking at the money market, overnight funding rates (DR001) have been low this year, averaging about 1.33%, seven basis points below the PBOC’s policy rate, indicating a relatively loose monetary environment. Additionally, the scale of open market operations is influenced not only by monetary policy stance but also by seasonal factors such as fiscal revenue and expenditure, tax payments, and holiday withdrawals. Therefore, it is not appropriate to judge monetary policy shifts solely based on the volume changes of specific open market operations.

Recently, PBOC Governor Pan Gongsheng stated at the national “Two Sessions” economic press conference that building a scientific and prudent monetary policy system should be coordinated across objectives, tools, and transmission mechanisms. The goal is to gradually reduce reliance on quantity-based intermediate targets, using total financial assets more as observable, reference, and expectation indicators to better leverage interest rate regulation. The tools should be continuously enriched, and the short- and medium-term monetary support mechanisms improved. The transmission mechanism should be market-oriented, with transparent interest rate formation, regulation, and transmission, enhancing the transparency of monetary policy.

Industry experts emphasized that a scientific and prudent monetary policy system is a long-term goal, involving a systematic effort to shift macroeconomic regulation thinking, improve macroeconomic governance, refine the central banking system, and transform the monetary policy framework. Methodologically, it requires maintaining the stability of monetary policy, balancing short-term and long-term considerations, supporting steady growth while preventing risks, and managing internal and external factors. Strengthening countercyclical and cross-cycle adjustments is essential to avoid excessive policy swings and to support stable macroeconomic operation.