- On Tuesday, the People's Bank of China conducted a 5 billion yuan 7-day reverse repo operation, maintaining the interest rate at 1.40%, fully meeting the demand of primary dealers, and completely offsetting the due amount for the day.
- The outstanding balance of reverse repos in the open market has remained at an extremely low level of 3 billion yuan, facing evenly distributed maturity pressure over the next five working days.
- Short-term liquidity in the money market is abundant, with the 1.40% policy rate having a significant anchoring effect, and market funding rates closely following the policy rate.
Policy Logic of Minimal Open Market Operations
On Tuesday, the People's Bank of China's open market operation scale returned to a minimal level of 5 billion yuan. From the transaction results, 5 billion yuan of 7-day reverse repos matured today, and the central bank achieved a complete offset for the day through equivalent issuance. This operation indicates that the total liquidity in the banking system is at a reasonably abundant or even relatively ample level, with commercial banks showing stable short-term financing needs from the central bank. The bidding volume and winning volume of primary dealers were identical, reflecting a high degree of market expectation consistency and the strong self-regulating ability of the interbank market.
According to Refinitiv data, as of now, the outstanding balance of reverse repos in the open market is only 3 billion yuan, which is at an extremely low position in the historical range. From the future distribution details, 5 billion yuan will mature on May 20, 21, 22, and 26, while 10 billion yuan will mature on May 25. This small and evenly distributed maturity structure significantly reduces the marginal impact of open market fund withdrawal on the market in the coming period.
Interest Rate Anchoring and Historical Evolution Path
Since May 8, 2025, the open market 7-day reverse repo operation rate has been adjusted from the previous 1.50% to 1.40%, and this policy rate has remained stable. The current 1.40% rate forms the core policy anchor of China's short-term money market. Reviewing the evolution of open market tools over the past two years, the central bank has made several attempts to optimize mechanisms. In July 2024, the central bank introduced temporary repo or reverse repo operations, setting the operation time window on working days from 16:00 to 16:20, using fixed-rate and quantity bidding, with rates adjusted by 20 basis points (bps) down and 50 bps up based on the 7-day reverse repo rate, thus establishing clear interest rate corridor boundaries for long and short funds at the closing stage.
Subsequently, on July 22, 2024, the open market 7-day reverse repo was officially adjusted to fixed-rate, quantity bidding, further strengthening the signal transmission of policy rates. In October 2024, the central bank launched a buyout reverse repo operation tool, enriching medium- and long-term liquidity management means, with its debut scale reaching 500 billion yuan and a term of six months. The coordinated use of these tools allows the central bank to demonstrate higher precision in regulation when facing funding needs of different terms.
Short-Term Liquidity Outlook and Policy Pricing
From the current market pricing perspective, in the short term, if there are no significant tax period shocks or intensive government bond issuances, short-term financing costs will continue to fluctuate narrowly around the 1.40% policy rate. The central bank aims to convey a signal of maintaining a stable funding environment through daily small-scale offset operations.
If future cross-border capital flows or accelerated local bond issuance lead to a temporary tightening of liquidity, the central bank may increase the scale of 7-day reverse repo operations or use temporary reverse repo tools to alleviate institutions' position pressure. Conversely, if the supply and demand of funds among non-bank financial institutions remain loose, the minimal offset operation model may continue to guide financial institutions to optimize their balance sheet structures and avoid excessive idle funds in the money market.
