China's Central Bank to Conduct 500 Billion Yuan Reverse Repo Operation

On June 4, the People's Bank of China announced plans to conduct a 500 billion yuan reverse repurchase operation on June 5, using a fixed quantity and interest rate bidding method with multiple price levels. According to Jin10, this operation, with a three-month term, will result in a net withdrawal of 500 billion yuan, as there is a maturity of 1 trillion yuan for this term this month. The scale of funds withdrawn is larger compared to last month's operations. Market institutions generally perceive the recent open market operations by the central bank as a response to the ample liquidity in the banking system and the decreased demand for liquidity from financial institutions. The central bank has accordingly reduced the scale of its monetary policy tools to prevent excessive declines in market interest rates and to guide the overnight funding rate (DR001) to operate near the policy rate level. Since April, the DR001 has remained around 1.2% for an extended period, gradually rising to approximately 1.3% by late May. Pang Ming, a senior research fellow at the National Institution for Finance and Development, noted, "As we approach the end-of-quarter window in early June, the central bank's recent open market operations signal an intention to avoid excessive liquidity injections while also preventing a tight funding environment. This aims to stabilize market expectations and provide policy space for upcoming cross-quarter funding fluctuations."