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 a 5 trillion yuan outright reverse repurchase operation on March 16, with a 6-month maturity.

Data shows that in March, 600 billion yuan of 6-month outright reverse repos mature. Therefore, the PBOC’s operation of 500 billion yuan of outright reverse repos on March 16 indicates a reduction in the amount of 6-month outright reverse repos maturing this month, with a net decrease of 100 billion yuan.

In March, the 3-month outright reverse repos have already decreased by 200 billion yuan, meaning that the total net withdrawal of outright reverse repos for both maturities this month is 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 indicates that 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, 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 lead to a tightening of liquidity.

Wang Qing pointed out that to address potential liquidity tightening, a combination of policy tools can be considered 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 and help financial institutions maintain solid credit support for the real economy, while also signaling that quantitative policy tools will continue to be strengthened, maintaining the moderate easing stance of monetary policy.

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

Industry experts note 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 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.

Expert: Focus more on price signals in PBOC open market operations

Industry experts say 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 a month with significant fiscal expenditure at the end of the quarter, local bond issuance during the “Two Sessions” is usually slower, reducing banks’ cash 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 development of the financial markets.

Experts also mention 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 expected to continue. 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 PBOC’s policy rate, indicating a relatively loose monetary environment. Moreover, 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, so 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, making the total financial volume more of an observable, reference, and expectation indicator, creating better conditions for interest rate regulation. The tools should be continuously enriched, and the short-, medium-, and long-term monetary policy tools should be better coordinated. The transmission mechanism should be improved to establish a market-oriented interest rate formation, regulation, and transmission system, and to enhance transparency.

Industry experts emphasize that a scientific and prudent monetary policy system is a long-term goal, involving a systematic effort to shift macroeconomic regulation, 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.