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The central bank added 600 billion yuan (approximately $84.3 billion) to the financial system today through its medium-term lending facility, easing funding pressures just before the quarter’s end and the upcoming National Day holiday. This action marks the seventh consecutive month of increased liquidity support via medium-term injections.
With 300 billion yuan in mature medium-term loans this month, the net addition of one-year funds amounts to 300 billion yuan. Additionally, it conducted 483.5 billion yuan in seven-day reverse repurchase agreements at a 1.4% interest rate, nearly canceling out the 487 billion yuan in reverse repos that matured today.
These measures helped alleviate liquidity strain at month’s close. Over the week, more than 2.1 trillion yuan (around $295.2 billion) will mature from central bank facilities—a record amount for this year—including over 1.8 trillion yuan in reverse repos and 300 billion yuan in medium-term loans.
Since lowering the reserve requirement ratio in May to free up 1 trillion yuan in long-term funds, the central bank has increased net liquidity injections for nearly four months. The pace of support through medium-term tools has notably stepped up in recent months, signaling a firm policy stance.
According to experts, multiple factors are driving these policies. These include a busy period for government bond issuance, tighter banking system liquidity due in part to reforms targeting excessive competition and profitability issues, and a robust stock market. Efforts to curb “involution” — an attempt to limit overly aggressive competition that hampers profits — are also playing a role.
The central bank’s actions suggest an ongoing commitment to stabilizing the macroeconomic environment through supportive monetary measures, experts say.
In addition to adding liquidity, the central bank has optimized its toolkit this month. It resumed 14-day reverse repos on September 19 and conducted a further 300 billion yuan in such transactions on September 22. These operations are typically timed before major holidays to prevent volatility caused by maturing funds, helping to smooth out short-term liquidity fluctuations.
These adjustments aim to stabilize market conditions in the near term while reinforcing the seven-day reverse repo rate as a benchmark for medium- and long-term interest rate expectations. Experts note that similar operations are often scheduled ahead of holidays like Chinese New Year and National Day to ensure a smooth transition and mitigate surprises from maturing securities.
Looking ahead, analysts predict that the central bank will continue to focus on maintaining stable liquidity. Fluctuations in interest rates around quarter ends are expected to stay manageable, and the 14-day reverse repo rate could see a slight decline.
Some analysts believe the rate may decrease by about 5 basis points in the short term. With tools such as outright reverse repos, medium-term loans, and possible further injections to reduce banks’ funding costs, there is potential for the 14-day rate to decline further over time.
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