On September 23rd, the central bank announced that to better align with the short-term liquidity needs of the banking system, it will conduct overnight reverse repurchase operations from September 28th to October 8th. These operations will use a fixed rate and quantity bidding method, with a daily operation cap of no more than 1 trillion yuan.

Wang Qing, Chief Macro Analyst at Golden Credit Rating, noted that the daily operation ceiling has been raised to 1 trillion yuan from the 600 billion yuan cap seen in the previous three rounds. This adjustment is primarily driven by increased demand for overnight reverse repos around the National Day holiday, influenced by factors such as residents' cash withdrawals before the holiday, month-end bank assessments, and the concentrated maturity of open market operations. By raising the daily operation limit, the central bank aims to fully satisfy financial institutions' short-term funding needs, guide the short-term money market rate DR001 to operate smoothly around the policy rate, and more effectively control its fluctuation range.

Wang Qing also observed that overnight reverse repo operations have gradually become more routine since the end of June, with the operational methods being continuously refined. It is anticipated that the central bank may further increase the frequency of these overnight operations in the future, potentially gradually replacing the 7-day reverse repo as the core policy tool for short-term liquidity management. This evolution could also pave the way for the overnight reverse repo rate to eventually supersede the 7-day reverse repo rate as the primary policy interest rate.

On the same day, the central bank also issued a notice for its Medium-term Lending Facility (MLF) operations. To maintain ample liquidity in the banking system, it will conduct 800 billion yuan of 1-year MLF operations on September 24th, using a fixed quantity, interest rate bidding, and multiple-price auction method. Regarding this, Wang Qing explained that with 600 billion yuan of MLF maturing in September, this represents a net increase of 200 billion yuan in the MLF renewal, contrasting with the previous month's reduction of 100 billion yuan. Considering that the two tenors of outright reverse repos for September were rolled over at equal amounts, this implies a combined net injection of 200 billion yuan from the central bank's medium-term liquidity operations for the month, marking the third consecutive month of net liquidity provision, with the scale of the net injection being 100 billion yuan higher than the previous month.