China’s Central Bank Fine-Tunes Liquidity Ahead of Quarter-End and National Day Holiday

On September 28, the PBOC conducted RMB139 billion of seven-day reverse repos, RMB661 billion of overnight reverse repos and RMB300 billion of 14-day reverse repos. The seven-day operation rate remained at 1.40%, while the total amount of reverse-repo liquidity supplied reached RMB1.1 trillion. Against RMB660.3 billion of maturing seven-day reverse repos, those operations alone represented a sizeable injection into the short-term funding market. When the RMB600 billion one-year MLF maturity is also included, however, the central bank’s open-market operations produced a net withdrawal of RMB160.3 billion. The distinction is important because the PBOC is increasingly managing liquidity across several maturities rather than relying on one single instrument.

The MLF maturity also needs to be viewed in the context of the PBOC’s earlier action. Before the September 28 maturity, the central bank had conducted RMB800 billion of MLF lending against RMB600 billion coming due, effectively providing RMB200 billion of additional medium-term liquidity during September. Together with other medium-term operations, this suggests the central bank is maintaining adequate structural liquidity while avoiding excessive short-term cash accumulation. The approach is consistent with policymakers’ recent emphasis on keeping liquidity reasonably ample rather than pursuing a large-scale monetary expansion.

Short-term funding conditions had already been relatively stable before the operation. On September 24, the overnight Shanghai interbank offered rate stood at about 1.364%, while the seven-day rate was around 1.40%. The key DR007 rate, which measures seven-day secured borrowing among deposit-taking institutions, was also close to the PBOC’s seven-day policy rate. At the same time, the central bank announced that it would conduct overnight reverse repos from September 28 through October 8, with a daily ceiling of RMB1 trillion, up from the RMB600 billion ceiling used during an earlier September liquidity-management window. This gives policymakers considerably more capacity to offset temporary cash shortages associated with quarter-end regulatory assessments, government payments, holiday withdrawals and changes in institutional funding demand.

The growing use of overnight operations is also part of a broader evolution in China’s monetary-policy framework. The PBOC introduced the overnight reverse-repo tool earlier in 2026 to improve its ability to smooth very short-term fluctuations in money-market rates. Rather than flooding the banking system with persistent liquidity whenever temporary funding pressure appears, the central bank can now provide funds for only as long as they are needed. Combined with seven-day operations, 14-day funding around holidays and longer-term tools such as the MLF, this creates a more layered liquidity-management system and strengthens the PBOC’s ability to guide market rates around its policy rates.

For financial markets, the September 28 operation therefore sends a more nuanced signal than the RMB160.3 billion net-withdrawal figure suggests. China is not simply removing liquidity ahead of a major holiday; it is changing the maturity structure of its support. Longer-lasting liquidity has already been supplied through the MLF, while large volumes of overnight and 14-day funding are available to address temporary demand. The strategy points toward increasingly precise monetary management, with the PBOC seeking to keep funding markets stable without creating unnecessary excess liquidity that could weaken policy transmission or encourage financial leverage.