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The central bank conducted a medium-term lending facility operation that exceeded the amount maturing for the 13th month in a row today. However, for March overall, there was a net withdrawal of 250 billion yuan ($36.3 billion) in medium-term liquidity after accounting for outright reverse repurchase agreements.
This marks the first net drain since October 2024. While the one-year lending facility resulted in a net injection of 50 billion yuan ($7.3 billion), smaller reverse repo transactions across two durations this month led to a combined net withdrawal of 300 billion yuan, offsetting the increase from the lending facility.
The central bank announced yesterday that it would undertake a 500 billion yuan ($73 billion) one-year lending operation today to ensure ample liquidity in the banking system. This operation was executed through fixed-amount interest-rate bidding, with successful bids determined at multiple pricing levels. With 450 billion yuan of maturing funds from this facility in the month, the operation resulted in a net injection of 50 billion yuan.
Analysts note that the net withdrawal observed in March does not indicate a shift toward tightening long-term liquidity measures. Instead, they believe policy will remain moderately accommodative, as authorities aim to preserve ample liquidity while contending with rising inflation risks driven by geopolitical tensions and elevated global oil prices.
For the first time since October 2024, the central bank recorded a net withdrawal of medium-term liquidity this month, confirmed Wang Qing, chief macro analyst at Golden Credit Rating International. This change is likely due to the large net injection—about 1.9 trillion yuan ($275.7 billion)—seen in the first two months of the year, which kept liquidity fairly abundant this month.
Nevertheless, Wang emphasized that this does not signal an imminent reduction of the reserve requirement ratio (RRR). He explained that the central bank plans to use a combination of tools—including adjustments to the RRR, treasury bond trading, medium-term lending facilities, and reverse repos—to maintain stable and ample liquidity.
Regarding whether the recent net withdrawal hints at a possible RRR cut, Wang pointed out that escalating Middle East tensions have driven up international oil prices sharply since late last month. Additionally, China’s overall price level has increased significantly this month, posing new challenges for economic growth.
In the near term, with external uncertainties heightened, domestic monetary policy is expected to focus on maintaining abundant liquidity and stabilizing market sentiment. The authorities may temporarily delay cuts to the RRR and interest rates to prevent overheating and control inflation.
Ming Ming, chief economist at Citic Securities, noted that recent geopolitical conflicts increase China’s imported inflation risk. He suggests that monetary policy will likely be calibrated carefully to balance domestic needs with external pressures. He anticipates that overall policy operations will become more stable, and investors should monitor fundamental data trends and global capital market shifts closely. He expects monetary policy to remain mildly accommodative.
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