PBOC Uses Multiple Tools Flexibly; Analysts Expect Smooth Month- and Quarter-End Liquidity

Beijing, September 21 (Xinhua) — An article published on September 21 in China Securities Journal reports that, according to Wind Data, the open market will see 272 billion yuan in 7-day central bank reverse repurchase agreements mature this week (September 21–24). Experts indicate that the central bank's liquidity injections have become more flexible and precise, with sufficient scale to effectively offset major disruptive factors. It is expected that liquidity will transition smoothly across the month and quarter, and market interest rates are likely to remain stable.

Liquidity Management Becomes More Refined

Recent open market operations by the central bank have shown a clear pattern of preemptive support and on-demand injections. Experts note that the combined use of overnight, 7-day, and 14-day reverse repurchase agreements has significantly increased the flexibility of fund absorption and release.

Specifically, during the mid-month period (September 14–18), which overlapped with tax payments and government bond settlements, the central bank announced its operations in advance and conducted overnight reverse repo operations for four consecutive days, while also carrying out 7-day and 14-day reverse repo operations on certain working days.

"Overnight reverse repo operations can further smooth the transmission of policy rates to market rates," said Zhao Zenghui, Chief Fixed Income Analyst at the Research Institute of Changjiang Securities. He added that the combined use of overnight and 7-day reverse repos allows for more precise smoothing of short-term liquidity fluctuations and improves the efficiency of liquidity management. The increasing frequency of overnight reverse repo operations also indicates that the central bank is steadily advancing the refinement of short-term interest rate control mechanisms.

Meanwhile, on the medium- to long-term liquidity front, a buyout reverse repo mechanism is also being established. Ming Ming, Chief Economist at CITIC Securities, explained that in terms of monthly operation dates, 7-day reverse repos are flexible and responsive; overnight reverse repos are conducted at the beginning, middle, and end of the month; buyout reverse repos are executed on the 5th and 15th of each month; and Medium-term Lending Facilities (MLF) are carried out on the 25th. This creates a sequential chain of liquidity tools of various maturities throughout the month, jointly ensuring ample interbank liquidity.

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Preemptive Signals of Support

Experts suggest that this week, cross-holiday demand combined with large-scale government bond payments may lead to a moderate tightening of liquidity, but the probability of significant seasonal volatility is low.

Liu Yu, Chief Economist at Industrial Securities, noted that net government bond payments this week are expected to reach 544.3 billion yuan. Although this is lower than the previous week's figure of over 600 billion yuan, it remains above historical averages and may cause some disruption to liquidity. However, with tax payment pressures easing and the resumption of 14-day reverse repo operations, the central bank has already signaled its intention to support cross-holiday and cross-quarter liquidity.

"Overall, liquidity within the month is likely to be manageable, and the central bank's supportive stance remains intact. This is key to why liquidity has remained stable in recent months, with volatility weaker than seasonal norms," said Tan Yiming, Chief Fixed Income Analyst at TF Securities. He noted that 14-day reverse repo operations have already resumed, and 7-day reverse repo injections have been relatively active. Additionally, overnight reverse repos are expected to be used again at the end of the quarter to smooth liquidity fluctuations.

Liu Yu predicted that the central bank will likely continue to flexibly combine 7-day, 14-day, and overnight reverse repos to smooth interest rate fluctuations during the cross-quarter and cross-holiday periods.

Intensifying Counter-Cyclical Adjustment

Experts state that multiple policy objectives—including economic growth and balance of payments equilibrium—point to further room for monetary easing.

"Monetary policy is expected to work in coordination with fiscal policy to maintain ample liquidity and smooth out large fluctuations in the funding market," said Zhang Di, Chief Macro Analyst at China Galaxy Securities.

Wang Qing, Chief Macro Analyst at Dongfang Jincheng, said that macroeconomic policies will continue to shift toward supporting growth. This includes accelerating government bond issuance and speeding up the deployment of 800 billion yuan in new-type policy financial instruments—both of which require liquidity support from the central bank.

"This means that in the short term, medium-term liquidity tools—including buyout reverse repos and MLF—are likely to see increased volumes to support government bond issuance and bank matching loans. This is one of the key areas where current monetary policy is intensifying counter-cyclical adjustments," Wang added.