800 billion! The central bank increases the volume to continue a 3-month term buyback reverse repo to maintain stable liquidity ahead of the Spring Festival

Today, the central bank announced that on February 4th, it will conduct an 800 billion yuan outright reverse repurchase operation.

Several experts told Caixin that this is the first increase and continuation of the 3-month outright reverse repurchase in nearly four months, indicating that the central bank is injecting medium-term liquidity into the market through this policy tool this month. “February remains a month with relatively concentrated bank credit issuance, combined with the impact of cash withdrawals before the Spring Festival, leading to increased market demand for liquidity.”

In addition, the liquidity situation in February will also face disruptions from the pace of government bond issuance. Industry insiders expect that in February, there will be 500 billion yuan of 6-month outright reverse repos and 300 billion yuan of MLF maturing, and the central bank will carry out some scale of increased continuation.

However, some experts also said that after the central bank launched a package of structural policies on January 15, monetary policy is in an observation period in the short term. Meanwhile, the increased continuation of the February 4th outright reverse repurchase further reduces the necessity of a recent RRR cut.

First increase and continuation of the 3-month outright reverse repurchase to meet Spring Festival liquidity demand

On February 4th, the People’s Bank of China will conduct an 800 billion yuan outright reverse repurchase operation with fixed quantity, multi-price bidding, and multiple bid-winning prices, with a 3-month (91 days) maturity.

In February, 700 billion yuan of 3-month outright reverse repos will mature. Therefore, the central bank’s operation on February 4th to conduct 800 billion yuan of outright reverse repos means an increase and continuation of the 3-month outright reverse repurchase in that month, with an increase scale of 100 billion yuan. This is the first increase and continuation of the 3-month outright reverse repurchase in nearly four months.

Dong Ximiao, Chief Economist at UnionPay and Deputy Director of Shanghai Financial and Development Laboratory, told Caixin that February remains a month with relatively concentrated bank credit issuance, combined with the impact of cash withdrawals before the Spring Festival, leading to increased market demand for liquidity.

Wang Qing, Chief Economist at Dongxing Securities, told Caixin that to ensure the funding needs of key projects, the new local government debt quota for 2026 has been issued in advance. This means that despite the upcoming long holiday in February, there will still be a certain scale of government bond issuance. Additionally, after the 2025 issuance of 500 billion yuan of new policy-based financial instruments is completed in October, it will drive a large-scale issuance of supporting loans in the first quarter of this year.

“The main disruptions to liquidity in February may be the Spring Festival and the pace of government bond issuance. Based on the issuance scale in January, the net financing scale of government bonds in February may slightly increase by 200 billion yuan, and due to fewer effective working days during the Spring Festival holiday, the issuance pace may be relatively concentrated,” said a report from Guojin Securities.

To address potential tightening factors in liquidity, the central bank is injecting medium-term liquidity into the market through this increased continuation of outright reverse repos, which also aligns with its attitude of nurturing liquidity at the start of the year.

According to the central bank’s liquidity injection data released today for January 2026, in January, the net injection of Medium-term Lending Facility (MLF) was 700 billion yuan, the net injection of Standing Lending Facility (SLF) was -7.9 billion yuan, and other structural monetary policy tools net injected 64.1 billion yuan. In open market operations, in January, net government bond purchases and sales amounted to 100 billion yuan, 7-day reverse repos net injected 167.8 billion yuan, the central treasury cash management net injected -60 billion yuan, and other term reverse repos net injected 100 billion yuan.

Overall, in January, the central bank used various policy tools to inject liquidity into the market, covering short-term to long-term maturities. “Through outright reverse repos and MLF operations, the central bank has continuously injected medium- and short-term liquidity into the market for several months, effectively maintaining ample market liquidity, ensuring the smooth operation of financial markets at year-end and the beginning of the year, and further improving the maturity structure of market liquidity. For example, on January 23rd, the central bank also conducted a large operation of 900 billion yuan of 1-year MLF, net injecting 700 billion yuan of medium-term liquidity,” Dong Ximiao pointed out.

Will the central bank’s continued large-scale net liquidity injection before the Spring Festival lead to a RRR cut?

“The central bank indicated that there is still room for RRR cuts and interest rate reductions in 2026, but the key is timing and pace. The likelihood of short-term implementation is reduced, and it still depends on circumstances, waiting for the right and necessary timing,” said Wen Bin, Chief Economist at Minsheng Bank.

Several experts pointed out that after the central bank launched a package of structural policies on January 15, monetary policy is in an observation period in the short term. Meanwhile, the increased continuation of the February 4th outright reverse repurchase further reduces the recent necessity of a RRR cut.

“Around February 15th, the central bank will conduct a 6-month outright reverse repurchase, likely to be an equal or increased continuation, thus achieving net liquidity injection this month. Around February 25th, the central bank will also conduct MLF operations, likely to be an equal or increased continuation,” said Dong Ximiao.

He further pointed out that in 2026, monetary policy will see two changes: first, a slight adjustment in the policy goal statement, shifting from ‘stabilizing and lowering’ to ‘low-level operation’; second, a policy shift to focus more on improving the efficiency of existing policies rather than simple increases. After net injections through structural monetary policy tools (such as PSL), observing the effects before using total volume tools like a comprehensive RRR cut aligns with current policy thinking.

“After the central bank launched a package of structural policies on January 15th, monetary policy remains in an observation period in the short term,” Wang Qing noted. It is also worth noting that the increased continuation of the 3-month outright reverse repurchase on February 3rd further indicates a reduced likelihood of a recent RRR cut.

Wang Qing believes that the central bank will continue to use MLF and outright reverse repos to inject medium-term liquidity into the market. With 500 billion yuan of 6-month outright reverse repos and 300 billion yuan of MLF maturing in February, it is expected that the central bank will carry out some scale of increased continuation.

Wen Bin stated that, from the perspective of RRR cuts, the central bank currently has many tools for monetary injection. The effect of outright reverse repos is very good, and combined with recent large net injections, the probability of a RRR cut in the short term is decreasing. The next step is to flexibly conduct government bond trading and other tools to maintain ample liquidity and create a favorable monetary and financial environment for smooth government bond issuance.

(Article source: Caixin)