(Yicai) March 25 -- The People’s Bank of China conducted a medium-term lending facility operation larger than the amount maturing for the 13th consecutive month today, but March still saw a net withdrawal of CNY250 billion (USD36.3 billion) in medium-term liquidity after outright reverse repo operations were taken into account.

The net drain was the first since October 2024. While the PBOC’s one-year MLF operation resulted in a net injection of CNY50 billion (USD7.3 billion), smaller than February’s CNY300 billion, outright reverse repos across two tenors this month led to a combined net withdrawal of CNY300 billion, more than offsetting the MLF increase.

The central bank said yesterday that it would conduct a CNY500 billion one-year MLF operation today to maintain ample liquidity in the banking system. The operation was carried out with a fixed quantity through interest-rate bidding, with winning bids determined at multiple price levels. With CNY450 billion of MLF funds maturing this month, the operation translated into a net injection of CNY50 billion.

Analysts said the March net withdrawal does not mean the PBOC is set to keep tightening medium- and long-term liquidity. Instead, they said policy is likely to remain moderately loose, while authorities balance the need to preserve ample liquidity with rising inflation risks linked to recent geopolitical tensions and higher global oil prices.

Policy Outlook and Liquidity Conditions

For the first time since October 2024, the PBOC carried out a net withdrawal of medium-term liquidity this month, confirmed Wang Qing, chief macro analyst with Golden Credit Rating International. This might mainly be related to the fact that the net injection of medium-term liquidity amounted to CNY1.9 trillion (USD275.7 billion) in the first two months of this year and that liquidity remained relatively abundant this month, he noted.

However, this does not indicate that the central bank will continue to tighten medium- and long-term liquidity, Wang added, noting that it will comprehensively utilize tools such as the reserve requirement ratio, treasury bond trading, MLF, and outright reverse repos to maintain relatively stable and ample liquidity.

On whether the net withdrawal in medium-term liquidity signals an imminent RRR cut, Wang said the recent evolution of Middle East tensions has sharply pushed up international oil prices since the end of last month, while China’s overall price level has risen strongly this month, creating fresh disruption for growth momentum.

In the near term, as external uncertainty rises abruptly, domestic monetary policy is likely to stay focused on maintaining abundant liquidity and stabilizing market expectations, while the policy focus temporarily shifts toward curbing excessively fast price gains, Wang said, adding that cuts to the RRR and interest rates may therefore be moderately delayed.

Ming Ming, chief economist of Citic Securities, said the recent geopolitical conflicts have increased China’s imported inflation risk, and that monetary policy will likely be arranged in a measured way to balance domestic and external conditions. He said aggregate policy operations are likely to become steadier, adding that investors should watch for marginal changes in fundamental data and swings in global capital markets. He expects monetary policy to remain moderately loose.

Editor: Emmi Laine