On December 12, the People's Bank of China (PBOC) announced it would conduct a 600 billion yuan outright reverse repo operation on the 15th via fixed-quantity bidding with multi-price tendering, carrying a 6-month (182-day) maturity.
With 400 billion yuan of 6-month outright reverse repos maturing this December, this marks a net liquidity injection of 200 billion yuan for the month.
Earlier on December 5, the central bank rolled over 1 trillion yuan in 3-month outright reverse repos at unchanged volume. Combined, these operations represent the seventh consecutive month of expanded mid-term liquidity provisions across both tenors.
PBOC has established a regular liquidity supply pattern: 3-month reverse repos around the 5th of each month, 6-month reverse repos around the 15th, and 1-year Medium-Term Lending Facility (MLF) operations around the 25th.
In recent years, the central bank has effectively managed short-term fluctuations from fiscal activities and government bond issuance through coordinated policy tools. Money markets remain stable, with short-term rates oscillating narrowly around policy benchmarks while banking system liquidity stays ample.
A market expert noted China's recent innovations in monetary instruments—including incorporating treasury bond trading into its toolkit and creating two capital market support facilities—will further enhance liquidity management efficacy.
Globally, central banks employ varied tools for liquidity management with functional consistency despite nomenclature differences. These instruments fall into four tiers:
1. **Intraday Liquidity Support**: Free, ultra-short-term facilities (intraday/overnight) ensuring payment system stability. 2. **Routine Liquidity Provision**: Regular open market operations (e.g., repos) priced near policy rates, typically overnight or 1-week tenors. 3. **Contingency Liquidity**: Higher-cost "penalty rate" facilities (weeks to months) addressing sudden stresses like bank runs. 4. **Structural Liquidity**: Targeted longer-term funding (months to years) for policy priorities, priced close to market long-term rates.
China's framework aligns with international norms. Tools like intraday "auto-collateralized financing," reverse repos/MLF for routine needs, Sun Life (SLF) for emergencies, and relending programs for structural support collectively form a comprehensive system.
The expert emphasized China's toolkit now fully covers globally recognized liquidity instruments. Management principles also mirror global standards—primarily engaging banks and accepting high-quality collateral like sovereign bonds.
Notably, Sun Life (SLF) rates are set slightly above policy benchmarks to balance demand with moral hazard prevention. This layered, complementary approach sustains optimal liquidity conditions.
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