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 to Conduct 500 Billion Yuan 6-Month Reverse Repurchase on March 16

On March 13, the People’s Bank of China announced it will conduct a 500 billion yuan outright reverse repurchase operation with a 6-month maturity on March 16.

Data shows that in March, 600 billion yuan of 6-month outright reverse repos will mature. Therefore, the central bank’s operation of 500 billion yuan of outright reverse repos on March 16 indicates a reduction in the scale of 6-month outright reverse repos for the month, with a net decrease of 100 billion yuan.

This month, the 3-month outright reverse repos have already decreased by 200 billion yuan, meaning that the total net withdrawal of outright reverse repos across the two maturities in March 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 central bank 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 that the issuance scale of government bonds will continue to be high. 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 supporting loan issuance in March. Data shows that in February, medium- and long-term loans to enterprises 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 can 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 also signal that quantitative policy tools will continue to be intensified, maintaining the moderate easing tone of monetary policy.

Some industry experts also noted that the central bank will continue to implement moderately loose monetary policy this year. At the beginning of the year, multiple incremental policies involving structural monetary policy tools were announced, including lowering policy rates, expanding the scale and scope of support, and improving policy elements. Meanwhile, 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 central bank injects liquidity. The People’s Bank of China emphasizes a mix of short- and long-term tools, flexibly adjusting liquidity in the banking system. 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 Central Bank 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 banks’ available funds, and since March is a quarter-end month with higher fiscal expenditure, local bond issuance during the “Two Sessions” is usually slower, reducing banks’ cash consumption. The central bank’s monetary policy operations will be flexible and precise, adjusting tools based on liquidity and market conditions to support stable and healthy financial market development.

Experts also noted that in recent years, China has shifted further toward a price-based monetary policy framework. Open market operations are increasingly serving interest rate regulation goals, and this trend is unlikely to change. Looking at the money market, since the beginning of the year, the overnight funding rate (DR001) has remained low, averaging about 1.33%, which is 7 basis points below the central bank’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, People’s Bank 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 volume more as an observable, reference, and expectation indicator to better leverage interest rate regulation. The tools should be continuously enriched, and the short-, medium-, and long-term monetary support mechanisms improved. The transmission mechanism should be sound, with market-based interest rate formation, regulation, and transmission mechanisms, and greater transparency in 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, strengthen the central bank system, and transform the monetary policy framework. Methodologically, it requires maintaining the stability of monetary policy, balancing short- and long-term considerations, growth and risk prevention, internal and external factors, and strengthening countercyclical and cross-cycle adjustments to avoid large swings in monetary policy, supporting stable macroeconomic operation.