PBOC Launches RMB 600 Billion Outright Reverse Repo as External Volatility Rises; Central Bank Liquidity Support Becomes Key

On October 15, the People’s Bank of China conducted an outright reverse repo operation totaling RMB 600 billion. Market participants told Cailian Press that, given the recent rise in external volatility, the central bank is likely to prioritize keeping market liquidity ample and stabilizing expectations.

Liquidity conditions in October are expected to follow a pattern of easing early in the month and tightening later, with disturbances accumulating from mid‑month onward. Against this backdrop, the PBOC’s continued rollovers and injections via medium‑ and long‑term policy instruments may prove decisive in aligning liquidity supply with demand.

The PBOC disclosed that the RMB 600 billion operation was executed through a fixed‑quantity, rate‑bidding format with multiple accepted price levels and carries a six‑month maturity. This week, open‑market maturities total RMB 1.971 trillion, comprising RMB 1.021 trillion of seven‑day reverse repos, RMB 800 billion of three‑month outright reverse repos, and RMB 150 billion of one‑month treasury deposits. The timely reverse‑repo issuance has led market participants to expect that funding rates can remain low.

Wang Qing, Chief Macro Analyst at Dongfang Jincheng, noted that with RMB 800 billion of outright reverse repos maturing on October 15, the PBOC had already conducted an RMB 1.1 trillion rollover on October 9. Accounting for the month’s maturing volume, this implies an incremental RMB 300 billion in three‑month outright reverse repo rollovers, resulting in a combined increase of RMB 400 billion across the two tenors for October.

Research from Tianfeng Securities indicates that liquidity support in early October was underpinned by quarter‑start fiscal disbursements, holiday cash inflows, and accumulated effects of medium‑ and long‑term injections, which should help funding rates remain stable. From mid‑October, however, disturbances are likely to build; with active central‑bank support the overall pressure can be managed, although funding‑rate volatility may increase. The timing and scale of the PBOC’s liquidity operations, particularly its rollovers and new injections of medium‑term tools, will be central to balancing funding demand and supply.

In addition to an elevated schedule of maturing medium‑term liquidity compared with September, government bond issuance in October remains sizeable. Data show net government bond financing in October is expected at RMB 1.21 trillion, while tax‑payment outflows in mid‑to‑late October are estimated at about RMB 1.8 trillion, up RMB 700 billion month‑on‑month; together with cross‑month demand, these factors may amplify funding‑rate volatility.

Expectations that the central bank will cut the reserve requirement ratio in the fourth quarter have increased, which could lead to a reduction in the scale of monthly medium‑term injections versus the previous RMB 600 billion pace. A bond‑market trader told Cailian Press that recent sharp moves between equities and bonds, including a significant fall in technology stocks, were largely anticipated, and that volatility will likely rise regardless of tariff policy developments; nevertheless, central‑bank liquidity support should keep overall funding conditions steady.

Wang Qing emphasized that outright reverse repos provide the banking system with medium‑term liquidity to counter potential tightening, supporting government bond issuance and encouraging financial institutions to expand credit supply. Such operations also signal the central bank’s commitment to continued use of quantity‑based policy tools and a supportive monetary stance.

Ming Ming, Chief Economist at CITIC Securities, expects the PBOC to maintain active operations of MLF and outright reverse repos in October given its Q3 easing efforts and the need to coordinate with fiscal stimulus. With RMB 700 billion of MLF maturing this month, market observers anticipate the PBOC will likely roll over an equal or modestly larger amount. Overall, the central bank is expected to deploy a mix of outright reverse repos and MLF to sustain medium‑term liquidity provision.

Nevertheless, Wang Qing reiterated that the net addition of medium‑term liquidity may narrow from the relatively high monthly level previously observed, in part because a substantial RRR cut in Q4 would inject larger‑scale long‑term liquidity. Considering external conditions, growth momentum, price trends, and the imperative to stabilize the property market, authorities plan a sequence of growth‑support measures in the fourth quarter—anchored by stronger fiscal efforts, easier monetary policy, and targeted measures for the real estate sector—starting with RMB 500 billion of new policy‑based financial instruments. Under this policy mix, and with expectations for significant long‑term liquidity via RRR adjustments, net medium‑term liquidity injections are likely to be calibrated downward.