The People’s Bank of China (PBoC), the country’s central bank, announced on Monday it will conduct a 900 billion yuan ($125.7 billion) Medium-term Lending Facility (MLF) operation on Tuesday to maintain ample liquidity in the banking system amid the upcoming Spring Festival holiday, according to an official statement released on January 22.
With 200 billion yuan of MLF maturing this month, the operation will result in a net liquidity injection of 700 billion yuan, marking the 11th consecutive month of increased MLF rollover by the central bank. Combined with 300 billion yuan in net injections through three-month and six-month buyout repos earlier this month, the total medium-term liquidity support in January reaches 1 trillion yuan, as calculated by financial institutions.
The large-scale liquidity injection comes as China prepares for the Spring Festival, a traditional peak period for household cash withdrawals and corporate funding demands. Dong Ximiao, chief researcher at China Zhaolian Bank, noted that the 700 billion yuan net MLF injection is equivalent to a Reserve Requirement Ratio (RRR) cut of 0.25 to 0.50 percentage points, effectively easing potential liquidity strains caused by seasonal factors, accelerated government bond issuances, and robust credit expansion at the start of the year.
Wang Qing, chief macroeconomic analyst at Orient Securities, emphasized that the move reflects the central bank’s proactive stance in safeguarding stable liquidity conditions. “The early issuance of local government bonds in 2026, coupled with ongoing lending driven by the 500 billion yuan policy-based financial instruments launched in October 2025, has increased liquidity demand,” Wang explained. “The MLF operation will ensure sufficient funding for key projects and support the sustained economic recovery.”
Notably, the MLF operation adopts a fixed-quantity, interest rate tender with multiple-price winning method, a mechanism adjusted in March 2025 to allow financial institutions to bid based on their funding needs and market expectations, enhancing the market-oriented formation of interest rates. As the pricing benchmark for the Loan Prime Rate (LPR), the MLF operation also plays a crucial role in guiding down financing costs for the real economy, particularly for micro and small enterprises and rural sectors.
Regarding market expectations for further monetary easing, experts suggested that the substantial MLF injection may reduce the likelihood of an RRR cut before the Spring Festival. However, PBoC Governor Pan Gongsheng recently indicated that there remains room for RRR and interest rate cuts in 2026, as the central bank will continue to flexibly use multiple policy tools to align monetary supply with economic growth and price stability goals. Currently, China’s weighted average RRR stands at 6.3%, leaving ample space for future policy adjustments.
Looking ahead, Ming Ming, chief economist at CITIC Securities, predicted that short-term liquidity tools may remain stable following the intensified MLF and repo operations. In the long run, however, coordinated monetary and fiscal policies are expected, especially during periods of concentrated government bond issuances, to sustain the stable economic recovery momentum.
The MLF, introduced in 2014, is a core medium-term liquidity management tool of the PBoC, providing funds to qualified commercial and policy banks through pledged transactions with high-quality bonds such as treasury bonds and policy financial bonds as collateral. The central bank’s continuous MLF rollover underscores its commitment to maintaining a prudent yet supportive monetary policy stance, fostering a favorable financial environment for high-quality economic development.