On February 4th, the People's Bank of China executed a 75 billion yuan 7-day reverse repurchase operation using a fixed interest rate and quantity tender method, maintaining the operation rate at 1.4%. As 377.5 billion yuan in 7-day reverse repos matured on the same day, this resulted in a net withdrawal of 302.5 billion yuan after the offset. Looking at the week, the 7-day reverse repos on February 2nd and February 3rd also maintained net withdrawals, with scales of 75.5 billion yuan and 296.5 billion yuan, respectively. Overall, from February 2nd to February 4th, the cumulative net withdrawal via the People's Bank of China's 7-day reverse repo operations reached 674.5 billion yuan.

Wang Qing, Chief Macro Analyst at Dongfang Jincheng, stated that the net withdrawal of funds through the 7-day reverse repo operations since the beginning of the month is due to the large-scale incremental rollover of the MLF in January and the fact that it is currently the start of the month, with the peak period for resident cash withdrawals before the Spring Festival not yet fully arrived, leading to stable and slightly easing market liquidity. As the Spring Festival approaches and the pressure from resident cash withdrawals increases, it is anticipated that the People's Bank of China's 7-day reverse repo operations will shift towards net injections. Furthermore, the central bank might also activate 14-day reverse repos in the week before the holiday to reduce the volatility of market liquidity around the Spring Festival period.

According to the recently published data on liquidity injections via various central bank instruments in January 2026, the MLF saw a net injection of 700 billion yuan. Simultaneously, data also showed a net injection of 100 billion yuan from open market government bond transactions in January. Looking back, since the People's Bank of China resumed government bond transaction operations last October, the net monthly injection scales from October to December were 20 billion yuan, 50 billion yuan, and 50 billion yuan, respectively. It is evident that the net injection scale from government bond transactions in January increased significantly compared to previous months.

At a press conference held by the State Council Information Office in January, when asked whether the scale of government bond transaction operations would increase in 2026, Zou Lan, Deputy Governor of the People's Bank of China, stated that the central bank would flexibly conduct government bond transactions by comprehensively considering factors such as the need for base money injection, the supply and demand situation in the bond market, and changes in the shape of the yield curve. These operations, together with other liquidity tools, aim to maintain ample liquidity and create a suitable monetary and financial environment for the smooth issuance of government bonds.

Wang Qing believes that the current net purchase volume of government bonds remains relatively small but may gradually increase subsequently. It is estimated that the net injection scale from government bond transactions in February will be around 100 billion yuan or slightly higher.

Given the increased scale of net injections from tools like MLF and government bond transactions, the industry widely believes that the possibility of a near-term reserve requirement ratio cut has decreased.

Dong Ximiao, Chief Economist at Zhaolian, believes that in January, the People's Bank of China injected liquidity into the market through various policy tools, covering terms from short-term to long-term. Such a large-scale liquidity injection reduces the urgency and likelihood of implementing a comprehensive RRR cut in the short term, especially before the Spring Festival.

"The People's Bank of China introduced a package of structural monetary policies in January, indicating that monetary policy has entered an observation period in the short term, making the implementation of RRR or interest rate cuts unlikely. Additionally, the substantial incremental rollover of the MLF in January and the resumed incremental rollover of the 3-month outright reverse repo in February can, to some extent, substitute for a RRR cut in stabilizing the pre-holiday funding market, further implying a reduced probability of a near-term RRR cut," Wang Qing projected, suggesting that a window for interest rate and RRR cuts might open in the second quarter.

Ming Ming, Chief Economist at CITIC Securities, stated that given the lower cost of RRR cuts compared to balance sheet expansion tools, and against the backdrop of narrowing net interest margins and anticipated significant pressure from government bond issuance around mid-year, a RRR cut in the second quarter of this year is considered probable to ensure bank participation.