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PBOC Liquidity Operations
Net withdrawal of funds via medium-term lending facility in April
Primary Sources
China Taps Another Tool to Drain Excess Liquidity From Market
China's central bank is taking a further step to rein in a liquidity glut in its financial system by reducing the amount of medium-term funds it lends out to banks.
China injects additional liquidity into banking system
China’s central bank has stepped up liquidity injections into the financial system through short-term reverse repo operations, increasing liquidity amid low market rates, Bloomberg reports. The maintenance of accommodative monetary conditions continues to support demand for government bonds, which remain in a rally. Monetary policy and liquidity in China The People’s Bank of China added short-term liquidity to the banking system by injecting 9.5 billion yuan ($1.3 billion) on April 21 and 22 through seven-day reverse repo operations. This marked the largest amount since late March. While relatively small in scale, the move drew attention as the monetary system is already characterised by excess liquidity, with money market rates hovering near three-year lows. Short-term funding conditions remain loose. The overnight repo rate is holding at around 1.2%, close to a three-year low. Yields on one-month bank negotiable certificates of deposit have fallen to levels not seen since January 2023. In this environment, regulators continue to ensure access to low-cost short-term funding for banks and maintain stability in the money market. Bond market and preparation for issuance Rising liquidity has coincided with a continued rally in the government bond market. Futures on 10-year government bonds have risen for eight consecutive sessions, the longest streak since September 2024. Yields have also declined: 30-year bond yields have fallen to around 2.22%, down roughly 13 basis points this month. Additional support comes from expectations of large-scale issuance. Under a 1.3 trillion yuan ($179 billion) programme announced in March, authorities are preparing to issue ultra-long special government bonds to finance infrastructure and subsidies without widening the official fiscal deficit. A total of 119 billion yuan ($16.3 billion) of 20- and 30-year bonds is set to be issued in the coming days, with the 30-year tranche expected to be the largest on record. According to Huachuang Securities analyst Guannan Zhou, liquidity in the system remains “extremely abundant”, while regulators appear comfortable with current conditions, including rising leverage in the bond market. This creates a supportive backdrop for upcoming supply. Changjiang Securities expects the current rally to continue. Under current conditions, 30-year bond yields could fall to as low as 2.15%. China’s economy China’s central bank previously reaffirmed its intention to maintain a loose monetary policy, wh...
Christophe Barraud: China central bank boosts liquidity support ahead ...
China's central bank has ramped up liquidity support prior to the April tax season, seeking to alleviate short-term funding pressures following several weeks of ultra-loose money-market conditions. Christophe Barraud shared a report from Shanghai Securities News that detailed the central bank's recent actions, which are interpreted as efforts to smooth out funding volatility during this ...
PBOC injects more liquidity to spur growth - Chinadaily.com.cn
An outright reverse repo operation is a tool that the central bank introduced in October to better manage liquidity conditions. Previously, the PBOC typically used pledged reverse repos — whereby the bonds used as collateral are frozen in the accounts of commercial banks — to manage market liquidity.
