(Yicai) March 17 -- China’s central bank has net withdrawn CNY300 billion (USD43.6 billion) of medium-term liquidity through outright reverse repo operations this month, the first such reduction since June last year, as market liquidity improved after the Chinese New Year holiday.

The People’s Bank of China conducted CNY800 billion of three-month outright reverse repos and CNY500 billion of six-month operations on March 6 and March 16, respectively, to hedge against CNY1 trillion (USD145.1 billion) and CNY600 billion of maturing funds for the same tenors.

The previous reduction in the scale of outright reverse repos was in May last year, when the PBOC net withdrew CNY200 billion through such operations. In the same month, however, the central bank injected about CNY1 trillion of long-term liquidity by cutting the reserve requirement ratio by 0.5 percentage point.

The latest reduction may reflect the fact that the PBOC had already net injected about CNY1.9 trillion of medium-term liquidity in the first two months of the year, leaving market liquidity relatively ample after the Chinese New Year, Wang Qing, chief macroeconomic analyst at Golden Credit Rating International, told Yicai.

The move may also suggest that the next RRR cut could come soon, with close attention needed on monetary policy signals from the medium-term lending facility operations due later this month, Wang added.

Whether an RRR cut materializes will depend on macroeconomic conditions, pressure on banks to meet regulatory indicators, and the use of other medium- to long-term liquidity tools, Tan Yiming, chief fixed income analyst at TF Securities, told Yicai.

Supporting stable economic growth and a reasonable recovery in prices are key considerations for the central bank when shaping monetary policy, and the probability of an RRR cut would rise if economic indicators show significant deviations, Tan added.

Editors: Dou Shicong, Emmi Laine