PBOC Net Liquidity Injection Reaches 556.4 Billion Yuan in September as Experts Flag a New Medium-Term Tool Mix

The People's Bank of China has disclosed its liquidity injections through various policy tools for September. Taken together, the central bank injected a net 556.4 billion yuan during the month. The total comprises a net injection of 400 billion yuan through reverse repos other than overnight and seven-day operations, a net injection of 200 billion yuan through the medium-term lending facility (MLF), 100 billion yuan injected through outright government bond purchases in the open market, and a net withdrawal of 1.4 billion yuan through pledged supplementary lending (PSL).

Liu Tao, a senior research fellow at the International Finance Institute of the China Chief Economist Forum, told the National Business Daily that the structure of monetary policy tool usage shows the PBOC continued its "long-and-short combination, quantity-and-price in tandem" approach to liquidity management in September 2026. The central bank employed open market reverse repos, outright reverse repos, the MLF and structural tools in combination to smooth short-term funding and supply medium- and long-term base money, ensuring reasonably ample liquidity in the banking system at the end of the quarter.

Four features of September's liquidity injections

First, the mix of medium- and long-term tools has changed. Liu noted that September 2023 relied on an MLF over-extension of 191 billion yuan, while September 2024 shifted to a reserve requirement ratio (RRR) cut as the main tool with a reduced MLF rollover. Since 2025, outright reverse repos have become routine and shared responsibility for medium-term liquidity supply with the MLF. In September 2026, this tool mix underwent a phase adjustment, with the two tools no longer increased simultaneously. The MLF injected 800 billion yuan against 600 billion yuan maturing, for a net injection of 200 billion yuan, while outright reverse repos of both tenors were rolled over in equal amounts, leaving net injections at zero and ending two consecutive months of increased rollovers. Medium-term net injections were therefore mainly carried by the MLF, reflecting the PBOC's intention to control the pace of medium-term liquidity at a time when the average DR001 has remained below the 1.40% policy rate.

Second, short-term reverse repo operations focused more on offsetting disruptions from tax periods, government bond payments and quarter-end assessments. As a quarter-end month, September saw reverse repos used mainly to offset timing disruptions, reflecting a "no flood-like stimulus" approach. Overnight and seven-day reverse repos recorded a net withdrawal of 86 billion yuan, while reverse repos of other tenors saw a net injection of 400 billion yuan, for a combined net injection of 314 billion yuan. This shows the PBOC did not simply amplify short-term funding supply, but withdrew part of the excess short-term liquidity while covering quarter-end demand through reverse repos of other tenors.

Third, structural monetary policy tools showed "less quantity, more price support". Injections fell short of maturities, producing a net withdrawal from existing balances, while policy quotas and interest rates continued to be enhanced. PSL recorded a net withdrawal of 1.4 billion yuan and other structural tools a net withdrawal of 56.4 billion yuan. On price and quota terms, on September 29 the PBOC announced a 25 basis point cut in the PSL rate to 1.5% and expanded its supported areas to the "six networks" (water networks, new power grids, computing networks, next-generation communication networks, urban underground pipeline networks and logistics networks). The relending quota for technological innovation and industrial upgrading was raised by 200 billion yuan, with the support ratio lifted from 60% to 100%, and relending quotas for agriculture and small businesses were increased by 500 billion yuan. These measures show that structural support remains a priority.

Fourth, on interest rates, the money market center stayed low, the interest rate corridor operated smoothly, and the standing lending facility (SLF) provided liquidity on demand, effectively guarding against quarter-end funding stress. Compared with the same period in previous years, the PBOC did not use an RRR cut to release long-term base money in September, relying mainly on a combination of open market tools, marking a shift from large-scale aggregate stimulus to targeted drip irrigation.

In addition, outright government bond purchases in the open market injected a net 100 billion yuan in September. Liu said this reflects the PBOC using government bond trading to further enrich its liquidity management toolbox. That said, with overall liquidity ample, effective credit demand from the real economy remains relatively weak, and the transmission from ample money to ample credit is still blocked.

Focus on unclogging credit transmission

Looking ahead to the fourth quarter, Liu judges that monetary policy will most likely maintain a moderately loose tone, keeping liquidity reasonably ample while balancing the multiple objectives of steady growth, price recovery and external exchange rate constraints.

On quantitative tools, Liu noted that on October 8 the PBOC conducted 1.2 trillion yuan of three-month outright reverse repos, adding 200 billion yuan to the rollover and sending a clear signal of support. Considering continued net government bond financing pressure in the fourth quarter, the ongoing deployment of 800 billion yuan of new policy-based financial instruments, and credit demand tied to the construction of the "six networks", outright reverse repos and the MLF are expected to continue with increased rollovers to provide stable medium-term liquidity support. If a relatively large amount of MLF matures before the end of the year, the central bank may again inject on a large scale to offset it. Given that outright reverse repos and the MLF have already injected substantial medium-term liquidity and partly substitute for an RRR cut, the timing of any RRR cut may be delayed, with open market tools preferred.

On price tools, Liu said the PBOC's monetary policy committee stressed stronger counter-cyclical adjustment at its third-quarter meeting, with the policy focus shifting marginally toward short-term growth stabilization. Considering the concentrated issuance of government bonds in the fourth quarter and funding disruptions from fiscal deposit payments during the October tax period, the policy rate will most likely remain stable in the near term, and whether it is cut further will depend on price recovery, credit demand and exchange rate constraints.

On structural tools, Liu expects greater support for technological innovation, equipment upgrading, small and micro private businesses and affordable housing. In particular, after the PSL rate cut, policy-based lending related to the construction of the "six networks" is expected to accelerate.

Overall, Liu said high interest rates in major external economies remain a constraint, and monetary policy will stay "self-centered", balancing internal growth with the external exchange rate and focusing on unclogging credit transmission, guiding financial institutions to increase credit to the real economy, and aligning aggregate financing, M2 and nominal economic growth.