Two-tenor outright reverse repurchase operations both achieved net fund recovery, maintaining stable and ample liquidity stance unchanged

What seasonal factors are behind the central bank’s net liquidity withdrawal operations?

In March, the central bank announced arrangements for 3-month and 6-month outright repo operations, with net withdrawals of 200 billion yuan and 100 billion yuan respectively. This is the first net withdrawal of outright repo funds by the central bank since May 2025.

Since March, new changes in the central bank’s outright reverse repo operations have attracted market attention, prompting discussions about the possibility of future reserve requirement cuts.

According to First Financial reporters, the small net withdrawal of outright reverse repos in March is not directly related to a reserve requirement cut. The current tightening of liquidity injection by the central bank is the result of multiple factors, including seasonal influences and policy guidance. Recent liquidity increases have been driven by open market operations, re-lending, and fiscal treasury cash management tenders, among other channels.

Moderate Liquidity Injection

On March 16, the central bank conducted a 500 billion yuan 6-month outright reverse repo operation through fixed-amount, rate-based bidding with multiple price points, matching the 600 billion yuan maturing this month, and rolled over 100 billion yuan. Previously, 800 billion yuan of 3-month products had been completed, offsetting 1 trillion yuan of maturing funds, resulting in a net withdrawal of 200 billion yuan.

Wang Qing, Chief Macroeconomist at Orient Securities, stated that this mid-term net withdrawal mainly relates to the large liquidity injections at the beginning of the year and the continued ample liquidity after the holiday.

To maintain sufficient liquidity, the central bank has injected about 2 trillion yuan of medium- and long-term funds through various open market tools this year, supporting credit issuance around the Spring Festival, government bond issuance, and stable financial market operations.

It is noteworthy that the net withdrawal in March does not indicate a tightening of medium- and long-term liquidity. Overall, liquidity remains loose, with the 1-year interbank deposit rate around 1.55%, and long-term liquidity relatively abundant.

Recently, the market rate-setting self-discipline mechanism convened some banks to strengthen self-regulation, requiring that the proportion of overnight deposits exceeding the 7-day reverse repo policy rate (1.4%) at quarter-end not exceed 10-20%, aiming to further lower the cost of interbank liabilities.

CITIC Securities Chief Economist Ming Ming believes that under this environment, based on a policy model of smoothing peaks and filling valleys, there is no strong need for the central bank to increase liquidity supply, so overall liquidity operations in March have been prudent.

Maintaining a Moderately Loose Policy

The net withdrawal of outright reverse repos in March might suggest an upcoming reserve requirement cut?

Tan Yiming, Chief Fixed Income Analyst at Tianfeng Securities, said that whether a reserve requirement cut occurs depends on macroeconomic conditions, whether banks face pressure on key indicators, and the operation of other medium- and long-term liquidity tools.

Tan noted that promoting stable economic growth and reasonable price increases are key considerations of monetary policy. If deviations occur, the likelihood of implementing a reserve requirement cut and other aggregate tools could increase accordingly.

Industry experts say that the central bank’s liquidity management considers various factors. Looking ahead, the factors contributing to increased liquidity in the banking system are numerous. Recent increases in liquidity have been driven by open market operations, re-lending, and fiscal treasury cash management tenders.

Overall, the current tightening of liquidity injection by the central bank results from the combination of seasonal factors and policy guidance. The “moderately loose” monetary policy stance remains unchanged, and systemic tightening is unlikely in the near future.

The government work report this year proposed issuing 800 billion yuan of new policy financial instruments mainly for expanding investment. Wang Qing believes this will continue to support large-scale loan issuance in March. Data shows that in February, medium- and long-term loans for investment by enterprises increased significantly by 350 billion yuan year-on-year, the largest increase in nearly three years. These factors will, to some extent, exert a tightening effect on liquidity.

Therefore, Wang Qing suggests that to address potential liquidity tightening, the central bank should continue to use a combination of policy tools to inject medium- and long-term liquidity into the market, maintaining a relatively stable and ample liquidity environment. This will support government bond issuance, help financial institutions strengthen credit support to the real economy, and signal ongoing policy easing measures, maintaining the main tone of moderate easing.

On March 16, the central bank also conducted a 7-day reverse repo operation of 137.3 billion yuan at a fixed rate of 1.4%, with market rates remaining stable and liquidity overall balanced. The overnight Shibor fell by 0.1 basis points to 1.320%, the 7-day Shibor dropped by 1.6 basis points to 1.441%; the weighted average rate of DR007 declined to 1.4518%, DR001 rose to 1.3218%, and the 1-day government bond reverse repo rate on the Shanghai Stock Exchange increased to 1.5050%. Short-term interest rates fluctuated slightly around policy rates without large deviations.