① A large-scale increase in the MLF rollover and a significant expansion of medium-term liquidity injection in January can effectively address potential liquidity tightening trends. ② The market expects that after achieving a large net injection of MLF this month, the likelihood of an RRR cut before the Spring Festival is decreasing.
The central bank announced today that it will conduct a 900 billion yuan MLF operation on January 23. With 200 billion yuan of MLF maturing this month, this means the January MLF rollover will increase by 700 billion yuan, significantly expanding the net injection scale.
Industry insiders told Caixin reporters that in 2026, the central bank will continue to increase liquidity injections. A large-scale increase in the MLF rollover and a significant expansion of medium-term liquidity injection in January can effectively address potential liquidity tightening trends and guide the funding environment into a relatively stable and abundant state.
At the same time, the market also indicated that it is unlikely for the central bank to adopt an RRR cut to deal with pre-holiday funding fluctuations in the short term. 'A net injection of 700 billion yuan is equivalent to an RRR cut ranging from 0.25 percentage points to 0.5 percentage points in terms of scale. After achieving a large net injection of MLF this month, the possibility of an RRR cut before the Spring Festival is diminishing.'
Central Bank Increases Rollover to Stabilize Funding; Scale of Injection Key to Smooth Operations
The central bank announced today that, to maintain ample liquidity in the banking system, on January 23, 2026, the People's Bank of China will conduct a 900-billion-yuan MLF operation with a fixed quantity, interest rate bidding, and multiple price auction mechanism, with a one-year term. This means that the January MLF rollover increased by 700 billion yuan, significantly expanding the scale of net injections. Additionally, the net injection from outright repurchase operations with two maturity periods totaled 300 billion yuan this month, bringing the total net injection of medium-term liquidity in January to 1 trillion yuan, a substantial increase compared to previous scales.
Wen Bin, Chief Economist at Minsheng Bank, told Caixin reporters that in 2026, the central bank will continue to expand liquidity injections and flexibly combine various open market operation tools to maintain ample liquidity.
Dong Ximiao, Chief Researcher at Zhaolian, told Caixin reporters that the central bank continues to inject medium-term liquidity into the market to meet cross-holiday funding needs before and after the Spring Festival, offsetting disturbances to liquidity caused by factors such as accelerated credit disbursement and government bond issuance at the beginning of the year, and further improving the term structure of market liquidity.
Wang Qing, Chief Macro Analyst at Oriental Gold Credit, told Caixin reporters that the expansion of the central bank’s net injection is aimed at ensuring funding requirements for key areas and major projects. The new local government debt limit for 2026 has been issued in advance, meaning that a certain scale of government bonds will be issued in January 2026.
In addition, the market believes that after the completion of the 500-billion-yuan new policy-based financial tool deployment in October last year, it will continue to drive large-scale supplementary loans in January this year, amplifying the 'opening red' effect of credit. Wen Bin pointed out that the first quarter is the peak season for bank credit deployment. Combined with a series of structural tool reform measures previously introduced by the central bank, these measures help reduce banks’ funding costs, enhance the attractiveness of structural tools, ensure bank interest margins while strengthening the proactivity of credit deployment in key areas.
The TF Securities team noted that the funding environment may once again face a 'stress test,' and funding friction could still intensify. The scale of central bank injections may determine whether funding operates smoothly.
Wang Qing believes that the central bank's substantial increase in MLF operations and significant injection of medium-term liquidity in January can effectively address potential tightening trends, guiding the liquidity environment to remain in a stable and abundant state. This not only supports government bond issuance and encourages financial institutions to expand monetary credit supply but also signals the continued strengthening of quantitative policy tools, demonstrating that monetary policy remains supportive. At this stage, it can also serve as an alternative to reserve requirement ratio (RRR) cuts.
Liquidity faces short-term pressure; RRR cuts unlikely before the Spring Festival
This week, the planned issuance of government bonds amounts to 706.6 billion yuan, significantly higher than last week's scale. Specifically, treasury bonds issuance is 475 billion yuan, local government bonds issuance is 231.6 billion yuan, treasury bonds maturing total 170.7 billion yuan, local government bonds maturing total 14.4 billion yuan, net treasury bond payments are -10.7 billion yuan, and net local government bond payments are 217.2 billion yuan.
At the same time, the capital diversion effect in the equity market needs attention. The Tianfeng Securities team believes that the diversion of funds within the interbank market still warrants monitoring. Additionally, attention should be paid to seasonal factors at the beginning of the year. The smooth liquidity conditions at year-end may not automatically carry over into the beginning of the next year due to two key differences: the 'opening red' diversion effect on the liability side of banks might alter the priority of asset allocation, and the impact of the large tax payment period in January.
Central Bank Governor Pan Gongsheng stated today that regarding aggregate policies, the central bank will flexibly and efficiently use various monetary policy tools such as RRR cuts and interest rate reductions to maintain ample liquidity, ensuring that growth in social financing and money supply aligns with economic growth and overall price level target expectations. 'There is still some room for RRR cuts and interest rate reductions this year. The People’s Bank of China will also ensure the implementation and supervision of interest rate policies to promote low overall social financing costs.'
However, the market expects that an RRR cut is unlikely to occur before the Spring Festival. Dong Ximiao stated, 'The net injection of 700 billion yuan is equivalent to an RRR cut of between 0.25 and 0.5 percentage points. After achieving a large-scale net injection through MLF operations this month, the likelihood of an RRR cut before the Spring Festival has decreased.'
Dong Ximiao further noted that the large-scale MLF operation conducted on January 23 is a continuation of a series of previous structural policy measures. As the foundation of China’s economic recovery still requires consolidation, the central bank’s introduction of significant policy measures at this time aims to continue fostering a more conducive monetary and financial environment, solidifying the economic recovery process, and providing strong support for medium- to long-term structural transformation.
Editor/Melody