mk headquarters of the People's Bank of China in Beijing Photo: IC" src="https://www.globaltimes.cn/Portals/0/attachment/2025/2025-01-19/bec8e468-3749-430d-bbbc-670022996f0a.jpeg" />

The headquarters of the People's Bank of China in Beijing Photo: IC

In order to offset the impact of concentrated maturities of reverse repos in the open market and to keep liquidity in the banking system at an adequate level, the People's Bank of China (PBC), the country's central bank, conducted 697 billion yuan ($97.2 billion) of seven-day reverse repos at an interest rate of 1.5 percent on Wednesday.

As a large volume of reverse repos matures after the holiday, market participants are closely watching liquidity trends and the central bank's next moves in the open market. According to data from the financial platform Wind, from Wednesday to Friday, over 2 trillion yuan in reverse repos will mature in the open market.

A reverse repo is a process in which a central bank purchases securities from commercial banks through bidding, with an agreement to sell them back in the future.

"The central bank's action is primarily aimed at releasing liquidity into the market to maintain a reasonable and sufficient liquidity level," Yang Delong, chief economist at Shenzhen-based First Seafront Fund, told the Global Times on Wednesday.

Due to seasonal factors, market liquidity has been relatively tight recently. On the one hand, there was an increased demand for cash from residents ahead of the Spring Festival, and on the other, January was the peak period for businesses' pre-paid taxes, Ming Ming, chief economist at CITIC Securities, told the Global Times on Wednesday.

As seasonal factors ease, liquidity is expected to gradually loosen after the Spring Festival. The central bank is likely to continue releasing more liquidity into the market through open market operations and other measures to maintain a reasonably ample liquidity level. This will lower market financing costs and reflect this year's shift in monetary policy tone, from a prudent stance to a moderately loose one, Yang said.

A moderately loose monetary policy should be implemented. Also, ample liquidity should be maintained and the growth of social financing and money supply should match the expected targets for economic growth and price levels, said the Central Economic Work Conference held in Beijing in December 2024.

The PBC ramped up open market operations to ensure sufficient liquidity during the holiday period, including putting into use a newly established tool - the outright reverse repo. 

The new tool would have a tenor of no more than one year, longer than those for regular reverse repo operations, which typically have tenors of seven, 14 or 28 days. It filled a gap in the PBC's liquidity toolbox, which previously lacked a tool for periods ranging from one month to one year, the Xinhua News Agency reported.

Since the introduction of the new tool, the central bank has gradually expanded the scale of its outright reverse repo operations, increasing from an initial 500 billion yuan to 800 billion yuan, 1.4 trillion yuan and most recently, 1.7 trillion yuan, with maturities ranging from three to six months. 

So far, the operations were all due to maturity after the Spring Festival holiday, which "will help smooth out liquidity fluctuations during the holiday period," Wen Bin, chief economist of China Minsheng Bank, told the Global Times on Wednesday.