PBOC Implements Multiple Measures to Stabilize Funding; Liquidity Expected to Remain Ample in June

To maintain sufficient liquidity within the banking system, the People’s Bank of China (PBOC) recently announced that in May it conducted RMB 700 billion in outright reverse repurchase agreements (repos) through a fixed-quantity, interest rate bidding, and multi-price selection mechanism. This included RMB 400 billion in 3-month (91-day) repos and RMB 300 billion in 6-month (182-day) repos. Given that RMB 900 billion of 3-month repos matured in May, the net withdrawal for the month totaled RMB 200 billion.

Despite the continuation of net withdrawals through repos, experts noted this should not be seen as a signal of monetary tightening. Instead, it reflects a neutral offset to maturing instruments, preventing excessive liquidity injection. The central bank currently utilizes multiple channels for base money issuance, including the Medium-term Lending Facility (MLF), outright repos, and structural tools to provide medium-term liquidity.

In recent actions aimed at enhancing counter-cyclical adjustments and maintaining liquidity, the PBOC implemented several key measures. On May 15, the central bank executed its first reserve requirement ratio (RRR) cut of 2025, injecting approximately RMB 1 trillion into the financial system. Then, on May 23, it conducted RMB 500 billion in MLF operations, marking the third consecutive month of expanded rollovers and the second straight month of significant scale.

According to Wang Qing, Chief Macro Analyst at Dongfang Jincheng, this marks a continued commitment by the PBOC to strengthen policy support.

Ming Ming, Chief Economist at CITIC Securities (25.590, +0.07, +0.27%), stated that May’s MLF operations, combined with the RRR cut, have provided substantial liquidity. The reduced scale of May's outright repos reflects structural adjustments to meet banks’ evolving demand for central bank financing instruments.

Data from the PBOC shows that from October 2024 to May 2025, the central bank carried out eight outright repo operations, with issuance amounts of RMB 5000 billion, 8000 billion, 14000 billion, 17000 billion, 14000 billion, 8000 billion, 12000 billion, and 7000 billion, respectively.

Additionally, the PBOC announced no open market government bond transactions were conducted in May. Some market participants anticipate the central bank may resume bond purchases in Q3 to better utilize government bond yields as a pricing benchmark. Since temporarily halting these purchases in January, the PBOC has refrained from such operations for five consecutive months.

In its Q1 monetary policy implementation report, the central bank stated it would continue to monitor bond market developments from a macro-prudential perspective and assess changes in government bond yields to determine appropriate timing for resuming operations based on market supply and demand.

Sun Binbin, Director of Research at Caitong Securities (7.400, +0.03, +0.41%), argued that resuming government bond transactions and increasing PBOC holdings of government debt is urgent. To achieve the goal of building a strong financial nation, a sovereign credit-based currency issuance model is needed, and government bonds will eventually become a main channel for base money issuance. He projected the central bank may resume bond purchases in July or August, during peak periods of government debt net financing.

Looking ahead, industry insiders believe liquidity will remain ample in June. Ming Ming noted that, after considering local government bond issuance schedules, seasonal treasury issuance patterns, and fiscal operations, and excluding MLF and repo maturities, June is unlikely to experience a liquidity shortfall. However, due to typical end-of-month fiscal expenditures, intra-month fluctuations in liquidity may occur. He also mentioned that deposit rate cuts could accelerate “deposit migration.” Although no major shocks from interbank lending have been observed yet, continued monitoring of rising certificate of deposit (CD) issuance rates and central bank liquidity support measures will be necessary.