800 billion! The central bank increases the volume to continue a 3-month term buyback reverse repo to maintain stable liquidity ahead of the Spring Festival

Today, the People’s Bank of China announced that on February 4th, it will conduct an 800 billion yuan outright reverse repurchase operation.

Several experts told Caixin that this is the first increase and continuation of the 3-month outright reverse repurchase in nearly four months, indicating that the central bank is injecting medium-term liquidity into the market through this policy tool this month. “February remains a month with relatively concentrated bank credit issuance. Coupled with the impact of cash withdrawals before the Spring Festival, market liquidity demand has increased.”

In addition, the liquidity situation in February will also face disruptions from the pace of government bond issuance. Industry insiders expect that in February, there will also be 500 billion yuan of 6-month outright reverse repos and 300 billion yuan of MLF maturing, and the central bank will carry out some scale of increased continuation.

However, some experts say that after the central bank launched a package of structural policies on January 15, monetary policy is in a period of observation in the short term. At the same time, the increased continuation of the 3-month outright reverse repurchase on February 4 further reduces the necessity of a recent RRR cut.

First increase and continuation of the 3-month outright reverse repurchase to meet Spring Festival liquidity demand

On February 4, the People’s Bank of China will conduct an 800 billion yuan outright reverse repurchase operation with fixed quantity, rate bidding, and multiple price bids, with a maturity of 3 months (91 days).

In February, 700 billion yuan of 3-month outright reverse repos will mature. Therefore, the central bank’s operation on February 4 to conduct 800 billion yuan of outright reverse repos means an increase and continuation of the 3-month outright reverse repurchase this month, with an increase scale of 100 billion yuan. This is the first increase and continuation of the 3-month outright reverse repurchase in nearly four months.

Dong Ximiao, Chief Economist at UnionPay and Deputy Director of Shanghai Financial and Development Laboratory, told Caixin that February remains a month with relatively concentrated bank credit issuance, and the impact of cash withdrawals before the Spring Festival increases market liquidity demand.

Wang Qing, Chief Economist at Dongxing Securities, told Caixin that to ensure the funding needs of key projects, the new local government debt quota for 2026 has been issued in advance. This means that despite the upcoming long holiday in February, there will still be a certain scale of government bond issuance. Additionally, after the 2025 issuance of 500 billion yuan of new policy-based financial instruments is completed in October, it will drive a large-scale issuance of supporting loans in the first quarter of this year.

“The main disruptions to liquidity in February may be the Spring Festival and the pace of government bond issuance. Based on the issuance scale in January, the net financing scale of government bonds in February may increase slightly by 200 billion yuan, and due to the holiday and fewer working days, the issuance pace may be relatively concentrated,” said a report from Guojin Securities.

To address potential tightening of liquidity, the central bank is injecting medium-term liquidity into the market through this increased continuation of outright reverse repos, which also aligns with its attitude of nurturing liquidity at the start of the year.

According to the central bank’s liquidity injection data released today for January 2026, in January, the net injection of Medium-term Lending Facility (MLF) was 700 billion yuan, the net injection of Standing Lending Facility (SLF) was -7.9 billion yuan, and other structural monetary policy tools net injected 64.1 billion yuan. In open market operations, in January, net government bond purchases and sales amounted to 100 billion yuan, 7-day reverse repos net injected 167.8 billion yuan, the central treasury cash management net injected -60 billion yuan, and other term reverse repos net injected 100 billion yuan.

Overall, in January, the central bank used various policy tools to inject liquidity into the market, covering short-term to long-term maturities. “Through outright reverse repos and MLF operations, the central bank has continuously injected medium- and short-term liquidity into the market for several months, effectively maintaining ample market liquidity, ensuring the smooth operation of financial markets at year-end and the beginning of the year, and further improving the maturity structure of market liquidity. For example, on January 23, the central bank also conducted a large-scale operation of 900 billion yuan of 1-year MLF, net injecting 700 billion yuan of medium-term liquidity,” Dong Ximiao pointed out.

(Article source: Caixin)