Central Bank to Conduct Scaled-Down Rollover of 6-Month Outright Reverse Repos Tomorrow; Markets Closely Monitor March MLF Operation

Cailian Press, March 13 (Reporter Cao Yunyi) - The People’s Bank of China (PBOC) announced its second reverse repurchase operation of the month, continuing to reduce liquidity.

Today, the PBOC announced that on March 16, it will conduct a 500 billion yuan reverse repurchase operation, which means the 6-month reverse repurchase operations for the month will continue to shrink, with a reduction of 100 billion yuan. Considering that the 3-month reverse repurchase had already shrunk by 200 billion yuan on March 3, this results in a total net withdrawal of 300 billion yuan for the two maturities in March, the first since June 2025.

“Net withdrawal of funds in March does not mean the PBOC is tightening medium- and long-term liquidity. Going forward, the PBOC will use a variety of policy tools comprehensively to keep the liquidity stable and ample,” market insiders told Cailian Press. As March is a quarter-end month, the main liquidity disturbances will shift to cross-season factors. Market expectations suggest a pattern of “steady in the first half and slightly tight at month-end.” Some institutions also pointed out that attention should be paid to the upcoming MLF operations in March.

Net Withdrawal in March Reverse Repurchase Operations, Market Watches MLF Movements Closely

Historically, liquidity supply and demand in March tend to be relatively stable. On one hand, cash withdrawn by residents before the Spring Festival is gradually deposited back into banks after the holiday, increasing available funds. On the other hand, as a quarter-end month, fiscal expenditures are usually higher, and during the “Two Sessions,” local government bond issuance often slows, reducing banks’ fund consumption.

Previously, industry insiders told Cailian Press that considering these seasonal factors, liquidity in March will remain ample. The reduction and continuation of 3-month reverse repurchase operations fully demonstrate that the PBOC will adjust tools flexibly based on liquidity and market conditions, without signaling a shift in monetary policy.

Market also believes that this may be related to the high net liquidity injection of 1.9 trillion yuan in the first two months of the year, with liquidity remaining relatively abundant after the Spring Festival.

Dong Ximiao, Chief Economist at Zhaolian and Deputy Director of Shanghai Financial and Development Laboratory, said that the reduction and continuation of the 3-month reverse repurchase is a precise operation under the “moderately easing” monetary policy tone, based on current market liquidity conditions, using a flexible mix of tools.

“Monitoring the PBOC’s monetary policy operations shows flexible and precise adjustments, using tools reasonably according to liquidity and market conditions to manage liquidity,” said a market insider to Cailian Press today. From the perspective of the money market, since the beginning of the year, the overnight funding rate (DR001) has been low, averaging about 1.33%, seven basis points below the PBOC’s policy rate, indicating a relatively loose monetary environment.

The insider admitted that the scale of open market operations is influenced not only by monetary policy stance but also by seasonal factors such as fiscal revenue and expenditure, residents’ tax payments, and holiday withdrawals. Currently, it is not appropriate to judge whether monetary policy has shifted simply based on changes in open market operation quantities.

Funds Remain Stable and Ample in March

Looking back at the overall liquidity situation, since the beginning of the year, money market interest rates have fluctuated at low levels, and the yields on interbank certificates of deposit have continued to decline, reflecting the overall ample liquidity in the banking system and market expectations of a relatively positive stance on future monetary policy.

A bond trader told Cailian Press, “Today, the PBOC conducted a 37.5 billion yuan 7-day reverse repurchase, which, following yesterday’s slight net injection, indicates a return to net withdrawal, showing that monetary policy remains steady and neutral.”

Wind data shows that next week, 176.5 billion yuan of reverse repurchase will mature, with maturities of 48.5 billion yuan on Monday, 39.5 billion yuan on Tuesday, 26.5 billion yuan on Wednesday, 24.5 billion yuan on Thursday, and 37.5 billion yuan on Friday.

On the positive side, government bond supply pressure in March may ease compared to February. Looking ahead, the issuance of local government special bonds, mainly new ones, is expected to accelerate, and fiscal net financing in March is projected to remain high.

CITIC Securities Fixed Income Department estimates that the issuance scale of government bonds in March 2026 could be about 1.3 trillion yuan, with net financing around 220 billion yuan, which is lower than the average of the past five years. The issuance of local government bonds in March may reach about 1.1 trillion yuan, with net financing around 740 billion yuan, making it the second-highest net financing level in March over the past five years.

As a quarter-end month, the main liquidity disturbances in March will shift to cross-season factors. “It is expected that short-term liquidity will remain stable and slightly loose. This month is a quarter-end, and the PBOC is likely to continue supporting liquidity. Meanwhile, with rate cut expectations, interbank CD issuance rates still have room to decline,” said a relevant person from Chengdu Rural Commercial Bank.

(Cailian Press, Reporter Cao Yunyi)