600 billion yuan MLF credited, the central bank continues to increase and roll over for 12 consecutive months

21st Century Business Herald Reporter Ye Maishui

The central bank “drops a gentle rain.”

On February 24, the People’s Bank of China announced a medium-term lending facility (MLF) tender, stating that to maintain ample liquidity in the banking system, on February 25, it will conduct a 600 billion yuan MLF operation with a fixed amount and interest rate, using a multiple-price bidding method, with a one-year maturity.

Considering that 300 billion yuan of MLF will mature this month, the central bank net injected 300 billion yuan via MLF in February. This marks the 12th consecutive month of increased MLF operations.

This week, 2.2 trillion yuan of reverse repos mature

“With 300 billion yuan of MLF maturing in February, it means the MLF renewal adds 300 billion yuan, marking the 12th consecutive month of increased liquidity. The scale of increase is smaller than last month’s 700 billion yuan. However, in February, the net injection from two types of buyback reverse repos reached 600 billion yuan, resulting in a total net liquidity injection of 900 billion yuan for the month. This is the 10th consecutive month of net liquidity injection, slightly below last month’s 1 trillion yuan, remaining at a relatively high level,” said Wang Qing, Chief Macro Analyst at Dongfang Jincheng.

Wang Qing believes that the significant increase in medium-term liquidity injections, including MLF, in the first two months of the year may be driven by two reasons:

First, to ensure funding for key projects in important sectors and stabilize macroeconomic operations. The new local government debt quota for 2026 has been allocated early, and this year’s fiscal policy continues to prioritize front-loading. This means that despite the Spring Festival holiday in February, there will still be a substantial issuance of government bonds.

Second, the 500 billion yuan of new policy financial instruments issued in October 2025 will be completed, and with the People’s Bank of China’s structural monetary policy tools lowering interest rates, increasing volume, and expanding in January 2026, this will boost large-scale credit issuance in the first quarter. All these factors will, to some extent, tighten liquidity.

Therefore, the central bank’s continued increase in MLF in February to maintain substantial medium-term liquidity injections can effectively address potential liquidity tightening and guide funds to remain relatively stable and ample. This supports government bond issuance, encourages banks to maintain steady credit support, and signals ongoing policy easing measures, reflecting a continued supportive monetary stance.

CICC’s research report suggests that liquidity in the money market may remain ample in 2026, and under the influence of stable exchange rates and inflation targets, China’s monetary policy could further loosen.

Additionally, the first week after the Spring Festival holiday saw a large amount of reverse repos maturing—up to 2.2 trillion yuan—prompting the central bank to increase its “red envelope” efforts. Data shows that 7-day reverse repos worth 852.4 billion yuan and 14-day reverse repos worth 1.4 trillion yuan will mature this week, combined with tax periods and other factors, leading to a liquidity gap.

Caitong Securities analysts pointed out that the “strong deposits, weak loans” pattern in January weakened banks’ liabilities support, and post-holiday funding tensions may temporarily rise.

This view is echoed within the industry. Tianfeng Securities further notes that seasonal liquidity tightness after the holiday, especially during the “Spring Festival + tax period,” is more pronounced. Before the holiday, non-bank institutions tend to maintain leverage and hold securities, but after the holiday, short-term financing often matures simultaneously, causing a temporary rise in market interest rates. Historical data shows that such situations usually ease after the tax period ends.

Thus, the funding pressure on non-bank institutions may persist until the tax period concludes.

Short-term likelihood of RRR cuts is low

However, following the central bank’s actions, the market believes that the need for short-term interest rate or RRR cuts has diminished. Dongwu Securities pointed out that after the structural tool “interest rate cuts,” the People’s Bank of China continues to increase liquidity across different maturities, maintaining ample supply and a loose monetary environment.

Looking ahead, regular operations of government bond trading will serve as an effective liquidity supplement. With ample liquidity, key interest rates like the 10-year government bond yield are expected to remain within a narrow range. The jump in M1 growth signals improving economic activity. As low interest rates persist and deposit reallocation continues, the environment of monetary easing will continue to favor risk assets.

Wang Qing believes that the significant increase in medium-term liquidity in the first two months indicates a low chance of RRR cuts in the short term. This suggests that after the January package of structural policies, monetary policy remains in a period of observation.

CITIC Securities Chief Economist Ming Ming believes that the recovery in domestic manufacturing and imported inflation from abroad are expected to support a steady rise in PPI throughout the year. Due to lagging household income expectations and corporate profit recovery, as well as limited PPI transmission efficiency, CPI may remain low overall. The inflation trend is expected to diverge throughout the year, with the first half generally lower than the second half. Regarding real interest rates, 2026 is expected to see no clear trend in CPI, with PPI clearly rising, and interest rate cuts possibly delayed until no later than Q2.

Ming Ming also pointed out that, in the medium term, the main trading themes in the first half will revolve around market enthusiasm and data improvements; the sustainability of re-inflation narratives remains to be verified. The transmission efficiency from PPI to CPI is expected to be tested gradually by mid-year, and from Q3 2026, interest-rate bonds may face certain risks. Over a longer horizon, broad monetary easing and data improvements could lead to upward pressure on interest rates within the year.

(Edited by: Wen Jing)

Keywords: MLF