Increased Volatility in External Environment; Central Bank's Supportive Stance Becomes Key to Liquidity Conditions

Today, the central bank conducted 600 billion yuan in outright reverse repo operations. "Given the recent increase in external market volatility, it is expected that the central bank will place greater emphasis on maintaining ample market liquidity and stabilizing market expectations," an industry insider told a Cailian Press reporter.

In October, the liquidity conditions are likely to continue the pattern of "loose first, tight later," with increasing disruptive factors emerging from mid-month. The central bank's rollover and deployment of medium- to long-term monetary policy tools may become a key factor in balancing capital supply and demand.

According to the central bank's website, to maintain ample liquidity in the banking system, it conducted 600 billion yuan in outright reverse repo operations today using fixed amounts, interest rate bidding, and multiple price awards, with a maturity of six months.

This week, a total of 1.971 trillion yuan in central bank open market operations is set to mature, including 1.021 trillion yuan in 7-day reverse repos, 800 billion yuan in 3-month outright reverse repos, and 150 billion yuan in 1-month treasury deposits. However, given the central bank's timely execution of outright reverse repo operations, market expectations are that funding rates can remain low.

"Given the recent increase in external market volatility, it is expected that the central bank will place greater emphasis on maintaining ample market liquidity and stabilizing market expectations," Wang Qing, chief macro analyst at Oriental Gold, told a Cailian Press reporter. On October 15, 800 billion yuan in outright reverse repos matured, and the central bank had already conducted a 1.1 trillion yuan rollover on September 9. Combined with the 800 billion yuan maturity within the month, this implies a 300 billion yuan increase in the rollover of 3-month outright reverse repos in October. Thus, the total rollover increase for the two tenors of outright reverse repos in October amounts to 400 billion yuan.

An analysis by Tianfeng Securities in a research report noted that in early October, support mainly comes from fiscal expenditures at the start of the quarter, holiday cash回流, and the cumulative effects of medium- to long-term liquidity injections. Funding rates are expected to remain stable. From mid-October, disruptions will begin to accumulate. Under the central bank's active support, pressures may remain generally controllable, but volatility in funding rates could increase. The pace and intensity of the central bank's liquidity operations, particularly the rollover and deployment of medium- to long-term monetary policy tools, may become key factors in balancing capital supply and demand.

In addition to the increase in medium- to long-term liquidity maturities compared to September, government bond issuance in October remains substantial. Data shows that the net financing scale of government bonds in October is expected to reach 1.21 trillion yuan, with mid-to-late month tax-related fund outflows of about 1.8 trillion yuan, a month-on-month increase of 700 billion yuan. Combined with month-end demand, this may amplify volatility in funding rates.