The central bank will conduct 600 billion yuan in MLF operations, significantly increasing the net medium-term liquidity injection in the first two months of the year

On February 24, the People’s Bank of China announced that it will conduct 600 billion yuan of MLF operations on February 25. In the first two months of the year, the central bank has increased the scale of medium-term liquidity net injections, including MLF.

Chief Macro Analyst Wang Qing of Orient Securities pointed out that the central bank’s February increase in MLF operations, continuing substantial medium-term liquidity net injections, can effectively address potential liquidity tightening and guide funds to remain relatively stable and ample.

CITIC Securities Chief Economist Ming Ming’s team commented that during the liquidity recovery phase around the Spring Festival, the central bank provided sufficient incremental liquidity in the mid-end, reflecting a loose stance aimed at maintaining ample liquidity in the market.

Total net medium-term liquidity injection in February reached 900 billion yuan

To keep banking system liquidity ample, on February 25, 2026, the People’s Bank of China will conduct 600 billion yuan of 1-year MLF operations through fixed amount, rate bidding, and multiple price bid methods.

Wang Qing analyzed that in February, 300 billion yuan of MLF matured, meaning the central bank added 300 billion yuan of MLF to continue the operation for the 12th consecutive month. The scale of increase is smaller than last month’s 700 billion yuan. However, the net injection from two-term buyback repos in February was 600 billion yuan, resulting in a total net medium-term liquidity injection of 900 billion yuan for the month. This marks the 10th consecutive month of net injections, with the scale slightly below last month’s 1 trillion yuan, remaining at a relatively high level (the average monthly net injection in 2025 was 413.4 billion yuan).

Wang Qing believes that the significant increase in medium-term liquidity injections in the first two months of the year, including MLF, may be driven by multiple reasons.

First, to ensure funding for key projects in important sectors and stabilize macroeconomic operations, the new local government debt quota for 2026 has been allocated in advance, with fiscal efforts front-loaded. This indicates that despite the Spring Festival holiday, there will still be a substantial issuance of government bonds.

Second, the 500 billion yuan of new policy financial instruments launched in October 2025 has been completed, and combined with the January 2026 structural monetary policy rate cuts, increased volume, and expansion, this will boost credit issuance in the first quarter of this year. All these factors will to some extent tighten liquidity. Therefore, the central bank’s continued increase in MLF in February to maintain large-scale medium-term liquidity injections can effectively counter potential liquidity tightening and guide funds to remain relatively stable and ample. This supports government bond issuance, encourages banks to maintain credit support, and signals ongoing policy easing, demonstrating a continued supportive stance of monetary policy.

CITIC Securities Chief Economist Ming Ming’s team analyzed that in February, 600 billion yuan of net liquidity was injected through 3-month and 6-month buyback repos, combined with MLF, totaling 900 billion yuan of net medium-term liquidity injection.

Ming Ming’s team believes that during the liquidity recovery phase around the Spring Festival, the central bank provided sufficient incremental liquidity in the mid-end, reflecting a loose stance aimed at maintaining ample liquidity in the market.

Continuing to implement a moderately loose monetary policy

Looking ahead, Wang Qing analyzed that the significant increase in medium-term liquidity injections in the first two months suggests a low likelihood of reserve ratio cuts in the short term. After the central bank’s January package of structural policies, monetary policy remains in an observation period.

Ming Ming’s team believes that after the liquidity pressures of the Spring Festival end, the main future liquidity risks may stem from the pace of government bond supply. The central bank’s Q4 2025 monetary policy implementation report continued to emphasize a loose liquidity stance. It is expected that the central bank will maintain net injections through MLF, buyback repos, and other routine tools; during periods of heavy government bond issuance, reserve ratio cuts may still be considered.

The People’s Bank of China recently released its Q4 2025 monetary policy implementation report, stating that it will continue to implement a moderately loose monetary policy. The policy aims to promote stable economic growth and reasonable price increases, adjusting the policy’s strength, pace, and timing based on domestic and international economic and financial conditions and financial market operations. It will flexibly and efficiently use tools such as reserve ratio and interest rate cuts to keep liquidity ample and social financing conditions relatively relaxed, guiding the total financial volume and credit to grow reasonably, aligning social financing and money supply growth with economic growth and inflation expectations.

Experts believe that macro policies at the start of 2026 will be more proactive. On one hand, the moderately loose monetary policy will continue to exert effort, using various tools to maintain ample liquidity, including a 0.25 percentage point reduction in structural tool rates and improving the design and management of structural tools, incentivizing banks to increase credit to key sectors through market-oriented means. On the other hand, fiscal policy will adopt a more active stance. In January, government bond financing reached 976.4 billion yuan, an increase of 283.1 billion yuan from the same period last year, with significant increases in national debt, local government general bonds, and special bonds. The January issuance accounted for 13.5% of total social financing, the highest since 2021.

Experts point out that coordinated monetary and fiscal policies can amplify policy effects. Fiscal funds, as public resources, can directly reach enterprises and residents, while re-lending acts as an incentive mechanism to motivate financial institutions to support the real economy. When combined, these policies can significantly support economic restructuring and upgrading. For example, the central bank’s re-lending to private enterprises can encourage financial institutions to increase credit support for private firms, improving their access to financing. Simultaneously, fiscal policies like loan interest subsidies can directly reduce financing costs for small and micro private enterprises. This coordinated approach can help solve the problems of “difficult and expensive financing” for small and micro enterprises and positively promote private investment.