Central Bank: Conducts 500 billion yuan MLF operation, realizes net injection of 50 billion yuan

Source: Shanghai Securities News Author: Zhang Qiongsi

The People’s Bank of China announced on March 24 that to maintain ample liquidity in the banking system, it will conduct a 500 billion yuan Medium-term Lending Facility (MLF) operation on March 25, with a one-year maturity, using fixed amount, rate bidding, and multiple price points for the bid-winning method.

This operation is an increase and rollover, resulting in a net injection of 50 billion yuan. Dong Ximiao, Chief Economist at Lending Club, stated that after two rounds of reduced-scale rollover of the 3-month reverse repurchase operations in March, this increased MLF rollover sends a clear signal, helping to dispel market concerns about potential liquidity tightening.

Dong Ximiao said that the central bank injects liquidity through MLF and other monetary policy tools, which can effectively support government bond issuance and bank lending, forming a combined effort of fiscal and monetary policies.

“MLF has been increased and rolled over for the 13th consecutive month,” said Wang Qing, Chief Macro Analyst at Dongfang Jincheng. Considering that in March, the net withdrawal of liquidity from two maturities of outright reverse repos totaled 300 billion yuan, and the net liquidity withdrawal for the month was 250 billion yuan, this may be related to the high net liquidity injection of 1.9 trillion yuan in the previous two months, with the funds still abundant, and does not indicate that the central bank is tightening medium- and long-term liquidity.

Ming Ming, Chief Economist at CITIC Securities, stated that since the Spring Festival, overall liquidity has remained relatively loose, and the urgency for the central bank to maintain net liquidity injection is not high. Additionally, recent geopolitical conflicts have increased the risk of imported inflation in China. Under the policy tone of balancing internal and external factors, the overall monetary policy operations are more stable.

Looking ahead, Wang Qing said that in March and the coming period, the issuance scale of government bonds will remain high, which may to some extent lead to a tightening of liquidity. It is expected that the central bank will use a comprehensive set of medium- and long-term liquidity management tools, such as reserve requirement ratio adjustments, government bond buy/sell operations, MLF, and outright reverse repos, to keep liquidity stable and ample.

(Edited by: Wen Jing)

Keywords: MLF