PBOC to Conduct 500 Billion Yuan MLF Operation on June 25

The People's Bank of China (PBOC) will continue its second consecutive month of expanded rollovers of the Medium-term Lending Facility (MLF).

According to the MLF tender announcement released by the PBOC on June 24, to maintain ample liquidity in the banking system, the central bank will conduct a 500 billion yuan MLF operation on June 25, 2026, through fixed-quantity, interest-rate auction with multiple-price winning, with a tenor of one year.

Given that 300 billion yuan of MLF will mature in June, the rollover volume of the MLF this month will be expanded by 200 billion yuan. This marks the second consecutive month of expanded rollovers, with the increase 100 billion yuan larger than the previous month.

In June, the two-term outright reverse repos were reduced by a combined 300 billion yuan, while the MLF rollover will be expanded by 200 billion yuan, meaning the central bank's medium-term liquidity operations will see a net reduction of 100 billion yuan for the month.

Wang Qing, chief macro analyst at Golden Credit Rating, noted that this month's medium-term liquidity operations experienced a "tighten-then-loosen" process. The main reason is that market liquidity remained relatively loose at the beginning of June. The PBOC continuously implemented net withdrawals through short- and medium-term open market tools, including the 7-day pledged reverse repo and 3-month outright reverse repo, guiding market rates to rise back toward the policy rate. From mid-June, DR001 rose above the policy rate, and from June 15 the 6-month outright reverse repo was no longer reduced, with the 7-day pledged reverse repo switching to net injection. Recently, both DR001 and DR007 have stabilized above the policy rate, and the yield on 1-year negotiable certificates of deposit of commercial banks (AAA grade) has also risen by a notable margin, indicating that the previously loose market liquidity has clearly reversed - an important backdrop for the 200 billion yuan MLF rollover expansion on June 25.

Wang Qing further pointed out that in addition to the reversal of the previously loose market liquidity, the MLF expansion this month may be driven by two other factors: first, accelerated issuance of new local government special bonds has driven a significant increase in government bond financing in the final week of June; second, with some volatility in macro data since the second quarter, banks may accelerate the pace of credit allocation to infrastructure investment and manufacturing investment, supporting a stabilization in investment. The MLF rollover expansion can meet the longer-term funding needs of financial institutions, support the smooth issuance of government bonds and greater credit deployment by banks. This reflects the coordination of monetary and fiscal policies, and the timely, precise role of monetary finance in supporting the real economy.