500M yuan reverse repurchase creates the smallest scale in ten years, aiming to stabilize market expectations

Today, the central bank conducted a 500 million yuan seven-day reverse repurchase operation, setting a record low since the operation became routine in 2015. On the same day, 78.5 billion yuan of reverse repos matured, resulting in a net withdrawal of 78 billion yuan for the day.

Regarding this operation and the current macroeconomic and monetary policy trends, Wang Qing, Chief Macro Analyst at Dongfang Jincheng, pointed out that the direct reason for this operation is the recent steady and slightly loose liquidity situation, combined with further easing of liquidity at the beginning of the month. It also signals an intention to guide liquidity stability and prevent market interest rates from deviating excessively from the policy rate, which helps stabilize market expectations.

Wang Qing stated that the current relatively loose liquidity is mainly due to the People’s Bank of China’s large-scale net injection of 1.9 trillion yuan of medium-term liquidity through MLF and outright reverse repos in January and February, coupled with the relatively low net financing scale of government bonds in March. Previously, as the month-end and quarter-end approached, the central bank increased short-term liquidity through pledged reverse repos, effectively smoothing liquidity fluctuations. In the current context of rising external uncertainties due to Middle East tensions, maintaining ample liquidity and stabilizing market expectations have become key objectives of monetary policy at this stage. This is also a crucial reason why liquidity is not tight but rather loose at the end of the quarter. He further pointed out that in March, the central bank withdrew 250 billion yuan of medium-term liquidity, mainly to guide major market interest rates to fluctuate reasonably around the policy rate.

Looking ahead, he believes that outright reverse repos in April may continue to net withdraw liquidity, and major market interest rates such as the DR007 and the one-year AAA-rated interbank deposit rate are expected to stabilize or slightly rise.

At the same time, Wang Qing mentioned that since the end of February, the Middle East situation has driven up international oil prices, and in March, domestic inflation pressures have increased, causing some disturbance to economic growth momentum. In the short term, while maintaining ample liquidity, monetary policy will phase in measures to stabilize prices, with the timing of interest rate cuts and reserve requirement ratio reductions likely delayed. If external shocks further intensify economic disturbances, monetary policy will appropriately increase easing measures to respond flexibly to changes in the internal and external environment.