On September 23rd, the central bank made an announcement stating that to better meet short-term liquidity needs in the banking system, the People's Bank of China will conduct overnight reverse repurchase operations from September 28th to October 8th. These operations will use a fixed interest rate and quantity-based bidding, with a daily operation cap not exceeding one trillion yuan.

Wang Qing, chief macro analyst at Golden Credit Rating, said that the daily operation ceiling has been raised from six hundred billion yuan in the previous three rounds to one trillion yuan in this announcement. This increase is mainly due to the period around the National Day holiday, which sees elevated demand for overnight reverse repos caused by residents withdrawing cash before the holiday, month-end bank assessments, and the concentration of open market operations maturing. By raising the daily operation cap, the central bank can fully satisfy financial institutions' short-term funding needs, guide the short-end money market rate DR001 to operate smoothly around the policy rate, and more effectively control its fluctuation range.

Wang Qing believes that since the end of June, overnight reverse repurchase operations have gradually become more routine, with their execution methods also being refined. It is expected that the central bank might further increase the frequency of overnight reverse repo operations in the future, gradually replacing the 7-day reverse repo as the core policy tool for short-term liquidity adjustment. This could also pave the way for the overnight reverse repo rate to replace the 7-day reverse repo rate as the main policy interest rate.

On the same day, the central bank also issued a tender announcement for the Medium-term Lending Facility (MLF). To maintain ample liquidity in the banking system, on September 24th, the People's Bank of China will conduct an 800 billion yuan MLF operation with a one-year term, using fixed quantity, interest rate bidding, and multiple price winning methods.

Regarding this, Wang Qing commented that there are 600 billion yuan of MLF maturing in September, meaning that the MLF extension in September will add 200 billion yuan on a net basis, following the previous month's net reduction of 100 billion yuan. Given that both tenors of outright reverse repos for September are being rolled over at equal amounts, this implies that the central bank's combined medium-term liquidity operations for the month will inject 200 billion yuan on a net basis, marking the third consecutive month of net injection, with the net injection scale being 100 billion yuan higher than last month.