As late August approaches, the People's Bank of China has brought back its seven-day reverse repurchase operations. On August 21, the central bank conducted a 95 billion yuan seven-day reverse repo at a fixed rate through quantity bidding, fully satisfying the demand of primary dealers. This move came after an eight-trading-day pause in such operations.

The resumption highlights the central bank's increasingly precise control over short-term liquidity, according to Sun Binbin, chief economist at Caitong Securities. On one hand, it aims to safeguard liquidity without letting short-term conditions become overly tight; on the other, it seeks to keep the DR001, the overnight pledged repo rate for depository institutions in the interbank market, at a relatively elevated level to curb any rapid self-driven decline in long-term rates.

Looking back, the central bank halted seven-day reverse repos starting August 11. On August 12, it announced plans to conduct overnight reverse repos on August 14 and from August 17 to 19, using fixed rates and quantity bidding, with a daily cap of 600 billion yuan. Actual operations during this window totaled 349 billion yuan, 565.5 billion yuan, 469.7 billion yuan, and 327.4 billion yuan, respectively, injecting a combined 1.7116 trillion yuan.

Wang Qing, chief macro analyst at Golden Credit Rating, noted that funding conditions have been ample since August 14, so financial institutions' daily demand for overnight reverse repos stayed below the 600 billion yuan ceiling. During the four trading days from August 14 to 19, the averages for DR001 and the DR007, the seven-day pledged repo rate for depository institutions, remained stable below the 1.4% policy rate and dipped compared to earlier levels.

Looking at the current week, from August 24 to 28, the open market faces maturities of 600 billion yuan in medium-term lending facility loans and 95 billion yuan in seven-day reverse repos. Tan Yiming, chief fixed income analyst at TF Securities, expects the central bank to continue its precise support. The likelihood of a scaled-down MLF rollover appears limited, he said, noting that since the start of the year, the MLF has only been trimmed in April, by 200 billion yuan, when funding conditions were unusually loose for the season, reducing the need for additional policy support.

Additionally, overnight reverse repos were deployed at the end of both June and July, suggesting a similar move is likely at the close of August. According to a research note from Industrial Securities, the central bank's recent actions clearly signal its intent to keep funding rates stable. An overnight reverse repo is highly probable at month-end, and if the advance-notice approach is maintained, it would help the market allocate funds ahead of time and smooth out end-of-month volatility.

The second-quarter monetary policy implementation report also emphasized the need to "grasp the intensity, pace, and timing of policy implementation, and strengthen coordination with fiscal policy." To address concentrated local government bond payment pressures at month-end, the central bank may step in through MLF rollovers and reverse repo injections. Should such funding arrive in sufficient volume, the overall liquidity landscape is poised to navigate the month-end transition smoothly.