PBOC Injects 400 Billion Yuan to Alleviate Liquidity Strains

On June 13, 2025, the People's Bank of China (PBOC) announced plans to inject 400 billion yuan ($55.70 billion) into the banking system through six-month outright reverse repurchase agreements (reverse repos) scheduled for June 16. This marks the second such operation in June, following a surprise 1 trillion yuan injection via three-month reverse repos the previous week.

The PBOC's consecutive liquidity injections aim to alleviate funding strains during a period of elevated bond financing activities. Banks are facing a record 4 trillion yuan in interbank negotiable certificate of deposit (NCD) maturities this month, necessitating substantial liquidity to meet these obligations. Additionally, net government bond financing reached a seasonal peak of 410 billion yuan this week, further intensifying the demand for liquidity.

Outright reverse repos involve the central bank purchasing securities from commercial banks with an agreement to sell them back in the future. This process injects liquidity into the banking system, helping to manage short-term interest rates and ensure sufficient liquidity. The PBOC introduced this tool in October 2024 to enrich its monetary policy toolkit and better regulate liquidity provision.

Since the introduction of outright reverse repos, the PBOC has conducted several operations:

• October 31, 2024: 500 billion yuan with a six-month tenor.
• November 29, 2024: 800 billion yuan with a three-month tenor.
• February 2025: 1.7 trillion yuan with maturities ranging from three to six months.

These operations demonstrate the PBOC's proactive approach to managing liquidity, especially during periods of significant financial obligations and seasonal fluctuations.

Market observers anticipate further liquidity boosts from the PBOC. Some traders have noted increased short-term bond purchases by state-owned banks, possibly in anticipation of additional central bank actions. Investors are also closely watching the upcoming Lujiazui Forum, where PBOC Governor Pan Gongsheng is expected to provide insights into future monetary policy directions.

In May 2025, Chinese banks issued 620 billion yuan in new loans, a rebound from April’s nine-month low of 280 billion yuan but still underperforming analysts’ expectations of 850 billion yuan. Despite policy rate cuts and a recent trade truce with the U.S., loan demand remained weak due to deflationary pressures and subdued private sector confidence.

The PBOC's liquidity injections are crucial for maintaining economic stability, particularly during periods of high financial obligations. By ensuring adequate liquidity, the central bank supports the banking system's ability to meet maturities and finance new investments, thereby fostering economic growth. However, the PBOC must balance these injections to avoid excessive bond rallies that could lead to asset bubbles and financial instability.

The PBOC's recent liquidity injections underscore its proactive stance in managing the financial system's liquidity and supporting economic stability. As the central bank continues to navigate complex economic challenges, its actions will be closely monitored by market participants and policymakers alike.