Liquidity remains ample, with 6-month buyback reverse repos net withdrawing 500 billion yuan.

◎ Reporter Zhang Qiongsi

Against the backdrop of continued ample liquidity, outright reverse repos continue the net-traction (net withdrawal) trend. On May 14, the People’s Bank of China issued an announcement stating that, to maintain sufficient liquidity in the banking system, on May 15 it will conduct 300 billion yuan of outright reverse repo operations using fixed amounts, rate bidding, and a multiple-price-winning (multiple bid prices) approach; the term is 6 months (184 days).

This operation is a scaled-down continuation, with a net withdrawal of 500 billion yuan. Ming Ming, Chief Economist at CITIC Securities, told the Shanghai Securities News that this is the largest net withdrawal amount to date for 6-month outright reverse repos.

“The central bank has continued to scale down and roll over the 6-month outright reverse repos for the third consecutive month, and the scaled-down amount is 400 billion yuan larger than last month.” Wang Qing, Chief Macro Analyst at Dongfang Jincheng, said, “This month, the total scaled-down amount for outright reverse repos across the two tenors was 1 trillion yuan; the scaled-down amount increased by 600 billion yuan compared with April.”

The continued scaled-down rollover of outright reverse repos is mainly driven by the plentiful liquidity environment. Ming Ming said that since March, liquidity has remained consistently loose; this operation is intended to reasonably guide market sentiment and keep overnight rates running steadily.

Wang Qing also believes that the significant increase in the net withdrawal amount this time is mainly because since May, market liquidity has further evolved toward a looser direction: as of May 14, the average yield of 1-year term negotiable certificates of deposit of commercial banks (AAA rating) maturing within the month was 1.44%, hitting a historical low; both DR001 and DR007 are at clearly low levels.

For sustained loose liquidity, industry experts believe this is mainly due to the People’s Bank of China’s ample injection of medium- and long-term liquidity since the beginning of the year. In the first quarter, net injections of medium- and long-term funds through various operations totaled about 2 trillion yuan. In addition, bank credit disbursement and the issuance schedule of government bonds have proceeded steadily, without bringing significant pressure to tighten liquidity.

“Under the combined effect of these factors, although the central bank has recently scaled down several liquidity management tools, it has not yet clearly changed the trend of liquidity remaining broadly loose,” Wang Qing said.

Looking ahead to future liquidity management, in the latest published 2026 first-quarter Monetary Policy Implementation Report, the People’s Bank of China has clearly stated that it will continue to strengthen analysis and monitoring of liquidity supply and demand in the banking system and changes in financial markets, flexibly use various monetary policy tools, and keep liquidity abundant.

“The supportive stance of monetary policy has not changed, and the moderately easing policy tone has not changed,” Dong Ximiao, Chief Economist at Zhongan Jiuye, said: “Constrained by factors such as global inflationary pressure, it is expected that the central bank will use more structural monetary policy tools in a timely manner to pre-adjust and fine-tune; while maintaining the overall direction of moderately loose policy, it will not blindly step up total stimulus. With respect to liquidity, it is expected that after being relatively loose in April, funds will gradually return to a pattern that is neutral to slightly loose, and the central tendency of money market rates is expected to recover mildly after bottoming out.”

(Edited by: Wen Jing)

Keywords:

Reverse Repurchase