Large-scale continuation: Central Bank conducts 500 billion yuan MLF operation today

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, 2026, with a fixed amount, interest rate bidding, and multiple price points, for a one-year term.

On March 25, 450 billion yuan of MLF will mature. After this operation, there will be a net injection of 50 billion yuan, marking the 13th consecutive month of increased MLF operations by the central bank. Looking at the medium-term liquidity injections in March, 300 billion yuan was net withdrawn through 3-month and 6-month reverse repos, and combined with the MLF injections this month, a total net withdrawal of 250 billion yuan was achieved.

Since the Spring Festival this year, overall liquidity supply and demand have remained balanced. Therefore, several medium-term liquidity tools introduced since March have mainly resulted in net withdrawals, said Ming Ming, Chief Economist at CITIC Securities.

Wang Qing, Chief Macro Analyst at Orient Securities, believes that the net withdrawal of medium-term liquidity in March may be mainly related to the high net injection of 1.9 trillion yuan in the first two months of the year and the continued ample liquidity in March, and does not indicate that the central bank will continue to tighten medium-term liquidity.

The MLF amount due this month is 450 billion yuan. The central bank’s operation this time involves increased volume, with a net injection of 50 billion yuan, continuing the trend of increased MLF injections this year, said Dong Ximiao, Chief Economist at Zhaolian. Especially after two reductions in volume in this month’s reverse repo operations, this sends a clear signal of maintaining stability and alleviates market concerns about potential liquidity tightening.

Looking ahead, Ming Ming stated that future monetary policy may be reasonably balanced considering both domestic and external factors, with more stable aggregate operations and a moderate easing tone.

“Fiscal policy will be front-loaded in 2026, with larger issuance of government bonds. The central bank can effectively absorb government bond supply through tools like MLF, ensuring smooth fiscal financing and providing sufficient funds to support first-quarter credit issuance, forming a synergy between fiscal and monetary policies,” said Dong Ximiao.

Wang Qing noted that to address potential liquidity tightening, the central bank will continue to use various policy tools in combination to inject medium- and long-term liquidity into the market, guiding funds to remain relatively stable and ample. This is a concrete manifestation of the coordination between fiscal and monetary policies.

Previously, PBOC Governor Pan Gongsheng stated that the central bank will balance short-term and long-term considerations, support real economic growth while maintaining the health of the financial system, and coordinate internal and external balance by using multiple monetary policy tools such as reserve requirement ratios, policy interest rates, and open market operations to keep liquidity ample.

(Source: China Securities Journal)