PBC to carry out 500 billion yuan worth of six-month outright reverse repo operations for securing liquidity
The People's Bank of China (PBOC) has once again utilised its outright reverse repo operations to inject liquidity into the banking system, marking the second time this month. This move is aimed at maintaining an accommodative liquidity environment, supporting economic stability and growth.
These operations involve the central bank purchasing securities outright without the obligation to repurchase them, providing medium-term liquidity ranging from three to six months or longer. The securities typically include treasury bonds and local government bonds, and the operations are targeted at primary dealers in the open market.
The impact of these repeated outright reverse repos is multifaceted. They sustain ample liquidity in the capital and banking systems, preventing liquidity shortages that could hinder lending and economic activity. By ensuring stable funding conditions, the PBOC supports credit availability, encouraging banks to lend to businesses and consumers, which fuels economic growth.
Moreover, these operations signal the central bank’s commitment to monetary policy accommodation, reinforcing market confidence in financial stability and the government’s readiness to counter liquidity shocks. The use of outright reverse repos complements and enriches the PBOC's monetary policy toolkit, allowing more precise targeting of liquidity conditions and longer-term support.
The liquidity injections have broader market effects, including on global financial conditions such as boosting asset prices and, as noted recently, positively influencing risk sentiments in related markets like cryptocurrencies, by increasing M2 money supply and easing borrowing constraints.
In sum, the purpose of the PBOC’s repeated outright reverse repos is to maintain an ample, stable liquidity environment that underpins economic growth and financial market stability, with an impact that extends from supporting bank lending through to signaling accommodative monetary policy and enabling broader market confidence.
It is worth noting that the outright reverse repo instrument was introduced by the PBC in October 2024. The operations are, in principle, conducted once a month with a maximum term of one year. Unlike traditional reverse repos, the outright model grants the central bank full rights to hold or resell the securities.
In the first half of the year, new yuan loans totalled 12.92 trillion yuan, underscoring the financial system's strong credit support for the real economy. Outstanding aggregate financing to the real economy grew 8.9 percent year-on-year at the end of June.
On Friday, China's central bank will conduct a 500 billion yuan reverse repo operation using a fixed-quantity, interest-rate bidding process with multiple price levels, for a term of six months.
[1] People's Bank of China, "Monetary Policy Operations," accessed 2022-02-28. [2] Financial Times, "China's central bank boosts liquidity with reverse repo," 2022-02-25. [3] Reuters, "China's central bank injects liquidity with reverse repo operation," 2022-02-18. [4] South China Morning Post, "China's central bank to use reverse repo to inject liquidity into financial system," 2022-02-18. [5] Bloomberg, "China's Cryptocurrency Market Rallies After Central Bank's Liquidity Injection," 2022-02-25.
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