China’s Central Bank Performs First 14-Day Reverse Repo in 3 Months to Tackle Year-End Liquidity

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The country’s central bank has initiated its first 14-day reverse repurchase agreement in three months, a typical strategy during year-end used to stabilize market liquidity. Yesterday, it injected 100 billion yuan (about 14.2 billion USD) of net liquidity into the financial system through this 14-day reverse repo operation, marking its first such move since late September. Additionally, the bank conducted a 88.3 billion yuan (around 12.5 billion USD) seven-day reverse repo at a steady rate of 1.4 percent.

Meanwhile, financial data shows that 118.6 billion yuan worth of reverse repos matured on the same day. The central bank previously indicated that the 14-day reverse repo operations would be carried out through fixed-amount tenders with multiple interest rate bids.

A key analyst explained that the central bank typically initiates 14-day reverse repos around this period as the year-end approaches, mainly due to increased liquidity fluctuations caused by bank assessments, fiscal activities, and cash withdrawals. These operations help smooth market fluctuations and steer liquidity towards a stable and ample level, aiding in stabilizing market expectations and enhancing monetary policy effectiveness.

The 100 billion yuan size was considered moderate, reflecting the financial institutions’ funding needs and liquidity management goals. Running both seven-day and 14-day reverse repos simultaneously demonstrates operational flexibility, addressing funding requirements across the new year while avoiding excess liquidity buildup. This targeted liquidity injection aims to maintain stable market conditions during the holiday period, balancing supply and demand.

Looking ahead, the central bank is expected to predominantly rely on open market operations for liquidity management next year, with more precise and efficient control measures. The overarching goal remains to foster a stable financial environment that supports the real economy. Various liquidity tools will continue to play vital roles in smoothing short-term market swings and guiding interest rates. Efforts will also focus on improving transmission of monetary policy signals and channeling funds into critical sectors and weaker areas, thereby supporting high-quality economic development.