China Securities Journal front page: Central bank's precise regulation, liquidity expected to be reasonably ample at mid-year point

On June 4th, a front-page article in China Securities Journal stated that as the mid-year point approaches, the market's attention to liquidity is increasing. This is due to the fact that the liquidity supply and demand contradictions are often more prominent at mid-year, influenced by factors such as the end of the month and cross-quarter effects.

The article pointed out that if necessary, the People's Bank of China does not rule out the possibility of further measures such as lowering the reserve requirement ratio to release long-term liquidity and ensure that liquidity remains at a reasonable and ample level at mid-year and even in the second half of the year, creating a suitable monetary and financial environment for the sustained recovery of the economy.

On the other hand, the People's Bank of China is expected to restart government bond trading operations in a timely manner. The first quarter monetary policy implementation report for 2025 stated that the People's Bank of China will continue to observe and assess the bond market's operation from a macro-prudential perspective, paying attention to changes in government bond yields and resuming operations based on market supply and demand conditions.

The full text of the China Securities Journal article is as follows:

On June 3rd, the People's Bank of China shifted from net injection to net withdrawal in open market operations compared to the net injection at the end of May. According to the announcement from the People's Bank of China, on that day, it conducted a reverse repurchase operation of 454.5 billion yuan, and due to the maturity of 830 billion yuan in 7-day reverse repos, it achieved a net withdrawal of 375.5 billion yuan.

"The net withdrawal of funds by the People's Bank of China aligns with market expectations," said Wang Qing, chief macro analyst at Dongfang Jincheng. With the bank assessment point at the beginning of the month having passed, the liquidity situation has turned towards easing. The People's Bank of China will also comprehensively use collateralized reverse repos, medium-term lending facilities (MLF), and other short- to medium-term liquidity management tools to guide the banking system's liquidity to remain at a reasonable and ample level by mid-year.

Recent operations show that the People's Bank of China's attitude towards maintaining reasonable and ample liquidity is very clear, such as the reserve requirement ratio cut on May 15 that released about 1 trillion yuan in liquidity and the increase in MLF operations in May. The People's Bank of China has continuously "intervened" to release sufficient liquidity into the market.

As the mid-year point approaches, the market's attention to liquidity is increasing, which is due to the fact that the liquidity supply and demand contradictions are often more prominent at mid-year. Chen Xing, chief macro analyst at Caitong Securities, stated that historically, June is a traditional month for credit issuance, and the scale of bank reserve requirements will show a seasonal increase, which will have a certain impact on liquidity.

Considering both internal and external factors, industry insiders believe that there is still room for monetary policy to exert force in the direction of "moderate easing." The People's Bank of China will flexibly grasp the intensity and rhythm of policy implementation based on domestic and international economic and financial conditions and the operation of financial markets, maintaining reasonable and ample liquidity.

On one hand, the current distribution of liquidity injection tools by the People's Bank of China is becoming more reasonable. There are long-term tools such as reserve requirement ratio cuts and government bond trading, medium-term tools such as MLF and buyout reverse repos, and short-term tools such as 7-day reverse repos in the open market and temporary overnight reverse repos. By flexibly using these tools, the People's Bank of China can more precisely adjust liquidity.

In addition, the liquidity regulation by the People's Bank of China not only focuses on total balance but also pays more attention to structural optimization. Through structural monetary policy tools, the People's Bank of China guides funds to key areas and weak links in the real economy, injecting new momentum into high-quality economic development

If necessary, the People's Bank of China does not rule out the possibility of further measures such as reserve requirement ratio cuts to further release long-term liquidity, ensuring that liquidity maintains a reasonable and ample level in the middle of the year and even in the second half of the year, creating a suitable monetary and financial environment for the sustained recovery of the economy.

On the other hand, the People's Bank of China is expected to restart its treasury bond trading operations in a timely manner. The monetary policy implementation report for the first quarter of 2025 states that the People's Bank of China will continue to observe and assess the operation of the bond market from a macro-prudential perspective, paying attention to changes in treasury bond yields and resuming operations at an opportune time based on market supply and demand conditions.

Chen Xing believes that the pressure for a tightening of funds in the future is not significant, and the 7-day pledged repo rate (DR007) for deposit-taking institutions in the interbank market may fluctuate around 1.5%.

The Governor of the People's Bank of China, Pan Gongsheng, previously stated that the People's Bank of China will continue to earnestly implement the various deployments of the Central Committee of the Communist Party of China and the State Council, carry out a moderately loose monetary policy, and continuously manage monetary policy adjustments based on domestic and international economic and financial conditions and the operation of financial markets, while strengthening coordination with fiscal policy to promote high-quality economic development.

Source: China Securities Journal, Original Title: "Central Bank Precision Regulation, Liquidity Expected to be Reasonably Ample at Mid-Year"