Over 22 trillion yuan of reverse repos mature in the first week after the holiday; the central bank takes multiple measures to safeguard liquidity

Our reporter Han Yu

On February 26, the People’s Bank of China announced that it conducted 320.5 billion yuan of 7-day reverse repurchase operations at a fixed rate through a quantity-based bidding method, with an operation rate of 1.40%. Due to 400 billion yuan of reverse repos maturing on the same day, a net withdrawal of 79.5 billion yuan was achieved.

In fact, after the Spring Festival holiday, the maturity pressure on open market operations increased to a relatively high level. Wind data shows that during the first week after the holiday (February 24 to February 28), the total maturity of reverse repos and Medium-term Lending Facility (MLF) was 255.24 billion yuan. This includes 85.24 billion yuan of 7-day reverse repos and 140 billion yuan of 14-day reverse repos, totaling 225.24 billion yuan; additionally, 30 billion yuan of MLF matured.

“After the Spring Festival holiday, the amount of open market operations maturing rose to a historic high. Coupled with factors such as tax period extensions and government bond issuance, market liquidity faces certain tightening pressures,” said Wang Qing, Chief Macro Analyst at Orient Securities, in an interview with Securities Daily. However, considering the large-scale return of funds to the banking system after the holiday, along with the central bank’s continued large-scale net liquidity injection through MLF and outright reverse repos in February, liquidity remains relatively stable and abundant.

Recent open market operations show that on February 24, the central bank conducted 526 billion yuan of 7-day reverse repos at a fixed rate through a bidding method. Due to 1.4524 trillion yuan of reverse repos maturing that day, the market experienced a net withdrawal of 926.4 billion yuan. On February 25, the central bank conducted 409.5 billion yuan of 7-day reverse repos at a fixed rate, with 400 billion yuan of reverse repos and 300 billion yuan of MLF maturing that day. Additionally, the central bank conducted 600 billion yuan of MLF operations, resulting in a net injection of 309.5 billion yuan into the market.

From a liquidity perspective, data from China Money Network shows that the DR007 (the weighted average interest rate of 7-day pledged repo of interbank deposit institutions) on February 24 (the first day after the holiday) was 1.5545%, up from 1.3211% on February 14. As of 5 p.m. on February 26, the latest DR007 was 1.4833%.

“Compared to before the holiday, liquidity rates have risen,” said Ming Ming, Chief Economist at CITIC Securities, in an interview with Securities Daily. Specifically, DR007 fluctuated around 1.5%, and DR001 (the overnight pledge repo rate of banking financial institutions) returned to around 1.37%. Overall, these rates have not deviated significantly from the central levels earlier this year. The monetary policy tone after the holiday remains accommodative, with substantial net liquidity injections through MLF and outright reverse repos, providing broad-term liquidity similar in scale to January. Short-term liquidity operations are also steady; although the first trading day after the holiday saw over 900 billion yuan of funds withdrawn, the next day shifted to net injections, clearly maintaining ample liquidity.

“The upward movement of DR007 and DR001 is controllable. This reflects the current monetary policy’s continued emphasis on maintaining ample market liquidity. At the beginning of the year, various policies to stabilize growth were prioritized, and the overall monetary and financial environment remains stable and slightly loose,” Wang Qing added.