The first trading day of September witnessed a seamless transition of market funds across the month-end period. On September 1, the People's Bank of China (PBOC) conducted a 7-day reverse repurchase agreement (reverse repo) of 5 billion yuan at a fixed interest rate through quantity tendering, fully meeting the demand from primary dealers, while also injecting 359 billion yuan via overnight reverse repos. According to Wind data, 447 billion yuan in overnight reverse repos matured that day, alongside 386 billion yuan in 7-day reverse repos, resulting in a net withdrawal of 469 billion yuan from the financial system.

Looking back at last week's open market operations (August 24-28), the PBOC injected a net 1.2265 trillion yuan, primarily through 7-day and overnight reverse repo operations focusing on short-term funds, while the one-year Medium-term Lending Facility (MLF) saw a net withdrawal of 100 billion yuan. Across the four trading days from August 27 to September 1, the central bank conducted four overnight reverse repo operations, cumulatively injecting 1.6395 trillion yuan.

Liu Tao, a senior researcher at the International Finance Research Institute of the China Chief Economist Forum, pointed out that the PBOC's recent open market operations have exhibited a distinct rhythm of "continuous support before the month-end and orderly withdrawal after." The overnight reverse repos have precisely smoothed month-end funding gaps in a swift, short-term manner. After completing the final injection on September 1, these operations were offset against maturing funds that day, turning the overall stance to net withdrawal immediately after the month-end crossing. This does not signal tightening but rather a systematic recovery of the excess liquidity previously injected to address month-end reserve requirements, reflecting a balance between supply and demand to smooth liquidity fluctuations.

At the month-end juncture, funding conditions tightened marginally, but the PBOC's flexible injections facilitated a stable transition. Data shows that on August 31, the Shanghai Interbank Offered Rate (Shibor) for overnight, 7-day, and 14-day tenors all rose collectively, with the overnight rate climbing 7.4 basis points to 1.413% and the 7-day rate gaining 2.7 basis points to 1.414%. By September 1, however, these rates declined across the board, with the overnight tenor dropping 4.9 basis points to 1.3640%. Meanwhile, the weighted average rate of the 7-day pledged repo (DR007) also retreated from the previous day's closing level of 1.418% to below the policy rate. As of 16:30 on September 1, DR007 stood at 1.3841%, down 3.39 basis points on the day.

"The month-end crossing has concluded, with the overnight Shibor rate falling to a low near 1.36%. The central bank's withdrawal of excess liquidity helps stabilize liquidity fluctuations," said Ming Ming, chief economist at CITIC Securities. Liu Tao noted that, based on recent funding rates, this month-end transition achieved a "stable volume with narrow rate fluctuations." The introduction and frequent use of the overnight reverse repo tool have further smoothed short-end funding volatility, restored market rate elasticity, and effectively stabilized liquidity expectations across the entire market. Since the deployment of this new overnight reverse repo tool in June, the frequency of operations increased notably in August compared to earlier months. Under the PBOC's flexible adjustment, volatility in short-term benchmark market rates has gradually declined, continuously advancing the monetary policy framework's transition toward price-based regulation.

Looking ahead to September and the second half of the year, Ming expects the central bank's short-end liquidity operations to remain prudently accommodative. During seasonal tightness at mid-month and month-end periods, it will likely employ overnight reverse repos in conjunction with 7-day reverse repos to offset short-term liquidity fluctuations. Liu Tao believes open market operations will probably maintain a tone of "precise drip-feeding, smoothing peaks and valleys, and price stability," with funding rates fluctuating narrowly around the policy rate. September is traditionally a quarter-end month, compounded by multiple disruptions such as treasury and local government bond issuance and settlement, MLF rollovers, quarter-end assessments, and pre-holiday reserve needs for the National Day holiday. Funding conditions may tighten marginally at certain stages, prompting the PBOC to prioritize conventional short-term tools like reverse repos and MLF to hedge against liquidity volatility, and if necessary, employ aggregate tools such as reserve requirement ratio cuts to shore up banking system liquidity and maintain reasonable abundance. Overall, the direction of ample liquidity remains unchanged, but volatility in funding conditions may be greater than in August due to supply pressures and quarter-end disturbances.