Increasing the amount for the 13th consecutive month! The central bank conducted a 500 billion yuan MLF operation, corresponding to a net injection of 50 billion yuan.

Reporter: Zhang Shoulin | Edited by: Wei Wenyi

To keep bank system liquidity ample, on March 25, the People’s Bank of China (hereinafter referred to as the “PBoC”) carried out a 500 billion yuan MLF (Medium-Term Lending Facility) operation with a fixed amount, rate bidding, and a multi-price-bid winning approach, with a term of one year.

Image source: PBoC official website

The reporters of the Economic Daily (每日经济新闻) noticed that in March, 450 billion yuan in MLF matures, meaning that in March, there will be an additional 50 billion yuan of MLF rollovers, for the 13th consecutive month of increased additions. After the March MLF operations take effect, the MLF balance will further rise to 7.3 trillion yuan. However, considering that March’s outright reverse repos had net liquidity drainage of 300 billion yuan, the combined total of MLF and outright reverse repos can still be seen as being in a net liquidity drainage position.

Wang Qing, chief macro analyst at Oriental Jincheng, said this is likely mainly related to the net medium-term liquidity injection scale of as much as 1.9 trillion yuan in the first two months of this year, and that in March the money market has continued to be in a state that is relatively ample. It does not mean that the PBoC will keep tightening medium- and long-term liquidity.

Since the Spring Festival, market liquidity conditions have been relatively loose

After the MLF operations take effect, in March the two items—MLF and outright reverse repos—will total a net liquidity drainage of 250 billion yuan.

Judging by liquidity conditions, a team led by Mingming, chief economist at Citic Securities, analyzed that since the Spring Festival, overall market liquidity has been relatively loose, liquidity supply and demand have generally remained balanced, and since March, liquidity in the medium- and long-end has been dominated by net drainage.

Wang Qing believes that next, the PBoC will comprehensively use medium- and long-term liquidity management tools such as the reserve requirement ratio for deposits, purchases and sales of government bonds, MLF, and outright reverse repos, to keep the money supply in a relatively stable and ample state.

“To ensure funding needs for major projects in key areas, expand effective investment, and have local government debt limit additions for 2026 issued in advance, and in addition to the financing scale of government bonds for this year determined in the Government Work Report reaching new highs again, all of this means that the issuance scale of government bonds in March and in the following period will continue to be at a relatively high level,” Wang Qing said. “As the 500 billion yuan new policy-based financial instruments announced in October 2025 are deployed and completed, in March this year, the new policy-based financial instruments worth 800 billion yuan will be mainly used to boost investment. These will continue to drive large-scale deployment of banks’ supporting loans in March and in the subsequent period, and the issuance of policy financial bonds will also expand significantly.”

Wang Qing pointed out that all of the above, to some extent, will bring about a tightening effect on liquidity conditions. Therefore, with a focus on addressing potential liquidity-tightening trends, it is necessary for the PBoC to continuously inject medium- and long-term liquidity into the market through coordinated combinations of various policy tools, guiding liquidity conditions to remain relatively stable and ample. This is also a concrete manifestation of coordination between fiscal and monetary policies.

Operations such as cutting the reserve requirement ratio and interest rate cuts may be appropriately delayed

Looking ahead, the Mingming team said that recent geopolitical conflicts have raised input-side inflation risks for China, and monetary policy may be arranged in a way that balances both domestic and external considerations, with overall operations becoming smoother. Next, attention can be paid to marginal changes in subsequent fundamentals data, as well as changes in volatility in global capital markets. It is expected that monetary policy will maintain a moderately accommodative stance.

So, does net liquidity drainage in the medium term imply that cuts to the reserve requirement ratio are imminent? Wang Qing analyzed that, generally speaking, there is a certain degree of substitution between medium-term liquidity provision tools and longer-term liquidity provision tools such as reserve requirement ratio cuts and purchases and sales of government bonds. At the same time, the timing of the reserve requirement ratio cut landing still needs to be judged by considering the trajectory of macroeconomy and finance. Since late February, developments in the Middle East have driven a sharp rise in international oil prices, and in March domestic overall price levels have shown a strong upward trend, which will also create some disturbance to growth momentum. “In the short term, amid a sudden rise in external uncertainty, China’s monetary policy is very likely to focus on maintaining ample liquidity and stabilizing market expectations. The policy focus may currently be tilted, at least for a phase, toward controlling prices from rising too fast, so operations such as cutting the reserve requirement ratio and interest rate cuts may be appropriately delayed.”

Recently, Cheng Shi, chief economist at Industrial Bank International, analyzed that as a macro-control tool centered on price signals, total-quantity policies can simultaneously affect both bank funding supply and the financing needs of micro entities, making them more suitable for the tasks of stabilizing inflation expectations and repairing aggregate demand. In terms of the direction of operations, the structural adjustments at the beginning of the year indicate to a certain extent that the policy looseness in 2026 is more likely to be reflected as mild measures and step-by-step progress.

In terms of tool usage, Cheng Shi judged that quantitative tools may be relatively prioritized, using methods such as reserve requirement ratio cuts to maintain reasonably ample liquidity and create an environment for structural policies to take effect. At present, the average reserve requirement ratio for financial institutions’ deposits is about 6.3%, and it is expected there is still room for about 50 bps (basis points) further reduction. Price-based tools are relatively cautious: while there is objectively some room for interest rate cuts, it is more likely to proceed with small, gradual adjustments and make dynamic assessments based on the policy transmission effect. The 7-day reverse repo rate is currently at a historical low of 1.4%, but it still has room for an appropriate adjustment of 10 bps to 20 bps. At the PBoC level, market expectations of a mild appreciation of the renminbi provide some room for liquidity provision. At the bank level, since 2025 there have been signs that net interest margins have stabilized; they have remained at 1.42% for two consecutive quarters, and in 2026 there will be deposits of three-year and five-year tenors maturing in large scale for re-pricing, which releases some space for interest rate adjustments. At the micro level, in 2026 the new round of “Two New” policies (large-scale equipment upgrades and replacing old consumer goods with new) will continue to support expanding domestic demand. The equipment upgrades of offline consumption infrastructure such as commercial complexes and shopping centers are included within the support scope. For key consumer goods, the “rate of getting supported/coverage for replacements” will be further increased, helping strengthen confidence among enterprises and residents, thereby improving the efficiency of monetary policy transmission.

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Cover image source: Economic Daily (每日经济新闻) media database