The People’s Bank of China (PBC) continued its efforts to support economic recovery on Monday by injecting liquidity into the financial system through open market operations. This move is part of China’s broader strategy to stabilize its financial environment and foster high-quality development for the world’s second-largest economy. The central bank’s actions come as part of a series of policy measures designed to promote sustainable growth and bolster market confidence.
PBC’s Reverse Repo Operations: A Key Liquidity Tool
On Monday, the PBC conducted 382 billion yuan ($53.28 billion) worth of seven-day reverse repos at an interest rate of 1.40%. This was aimed at ensuring the banking system had ample liquidity, with a net injection of 247 billion yuan, after 135 billion yuan worth of reverse repos matured. A reverse repo is a process in which the central bank purchases securities from commercial banks with the agreement to sell them back later, providing short-term liquidity to the market.
According to Zhao Xijun, co-president of the China Capital Market Research Institute, these reverse repo operations will help maintain “ample and reasonable” liquidity in the banking system. This is part of the central bank’s ongoing efforts to ensure that liquidity is effectively distributed and supports both short-term needs and long-term stability.
Recent Monetary Policy Moves and Long-Term Liquidity
This latest action follows a 500-billion-yuan, one-year medium-term lending facility (MLF) operation conducted by the PBC last Friday, aimed at adding new liquidity to the banking system. Additionally, the PBC’s recent reduction of the reserve requirement ratio (RRR) for eligible financial institutions, effective May 15, is expected to inject approximately 1 trillion yuan of long-term liquidity into the market. These moves underscore the PBC’s commitment to using a combination of tools to stabilize the economy and ensure continued growth.
Flexible and Targeted Monetary Policy
Zhao noted that these measures reflect the flexibility and precision of China’s monetary policy management. With an accommodative stance, the PBC has coordinated the use of structural tools and aggregate policy measures to ensure financial stability while fostering economic growth. By releasing long-term funds through the RRR reduction and addressing medium-term liquidity gaps with MLF rollovers, the central bank is focusing on a more balanced and efficient distribution of liquidity across various sectors of the economy.
Strategic Support for Key Economic Areas
As external market volatility continues, China has ramped up counter-cyclical adjustments to stabilize its market and sustain recovery. A recent meeting led by PBC Governor Pan Gongsheng highlighted the importance of financial support for key sectors, including technological innovation, consumption recovery, small businesses, and foreign trade stabilization. The central bank aims to enhance the quality and efficiency of financial services to support these areas and drive economic restructuring and transformation.
Looking Ahead: Policy Consistency and Confidence Boost
Experts such as Wen Bin, chief economist at China Minsheng Bank, emphasized that the government’s policy mix this year demonstrates sufficient intensity and consistency. Alongside the PBC’s monetary policies, fiscal measures are expected to further support domestic investment and consumption. These actions aim to reinforce long-term economic fundamentals, elevate confidence, and help China’s economy transition to a new phase of growth driven by innovation and structural transformation.
The comprehensive package of policies, including enhanced support for technological innovation and industrial upgrades, is designed to ensure that China remains resilient in the face of global challenges, while fostering sustainable economic development and improved market expectations.
