The central bank recently announced that it conducted overnight reverse repurchase operations for four consecutive working days from September 14th to 17th, with a maximum daily operation scale of 6000 billion yuan. This short-term monetary policy tool, which made its debut in June this year, has been deployed consecutively once again. What does this signify, and what new regulatory thinking does it reflect?

How does the overnight reverse repo help when the funds market experiences congestion? The interbank funds market can be compared to an urban traffic network. Around the mid-month tax period, month-end, or cross-quarter nodes, when enterprises pay taxes centrally, bonds are settled in large amounts, and banks undergo periodic assessments, short-term fund congestion easily occurs. In the past, to address fund shortfalls lasting only a day or two, the primary tool was the 7-day reverse repo. To put it in a metaphor: if the road is only congested for one day, the dispatcher can only issue a one-week pass. When the market is short of funds for just one day, the injected funds would be locked in for seven days, potentially leading to idle funds, significant fluctuations in market interest rates, and difficulties in precise regulation. The overnight reverse repo is precisely the short-term solution designed to address this pain point. The borrowing period is only one night, and the principal and interest are automatically withdrawn the next day, ensuring that any one-day shortfall is replenished on a daily basis. This tool is specifically designed to address temporary, short-term fund tensions.

Dong Ximiao, Chief Researcher at Lianhe and Deputy Director of the Shanghai Finance and Development Laboratory, analyzed that the core of these operations is to use a precise short-term tool to hedge against liquidity disturbances during the tax period. Dong Ximiao explained: "September 15th was the unified deadline for declaring and paying major taxes this month. The concentrated outflow of funds during the tax period will cause a phased tightening of the funds side." Conducting overnight reverse repos for four consecutive days fully covers the critical window of the tax period, precisely matching the short-term liquidity needs of institutions, avoiding fund accumulation that longer-term tools might cause, and helping to stabilize the DR001 short-term rate, guiding it to operate smoothly around the policy rate.

Notably, these operations set only an upper limit on scale and did not lock in a fixed injection amount, allowing the central bank to dynamically adjust based on the supply and demand of market funds. Dong Ximiao believes this fully embodies the "peak shaving and valley filling" approach (削峰填谷), and also signifies that the overnight reverse repo is gradually becoming a normalized tool, facilitating the transition of the monetary policy framework from quantity-based to price-based regulation.

Wang Qing, Chief Macro Analyst at Dongfang Jincheng, stated that the consecutive use of overnight reverse repos to achieve daily hedging and daily settlement significantly enhances the precision of liquidity management. The 6000 billion yuan is merely the operational ceiling; the actual injection amount is adjusted dynamically according to market fund demand, highlighting the characteristics of flexible regulation.

Is a reverse repo equivalent to a RRR cut or an interest rate cut? What is its role in the regulatory system? Many people may wonder: does the frequent use of reverse repos equate to a RRR cut or an interest rate cut, signifying "flooding" the market with liquidity? The answer is no. A RRR cut injects long-term available base money; an interest rate cut directly lowers financing costs for the entire society, affecting mortgage and corporate loan interest rates. In contrast, overnight reverse repos are temporary fund injections; the funds are fully returned the next day and do not alter the market's monetary stock. Their goal is not to stimulate the economy but to smooth out intraday fund fluctuations and stabilize short-term rates.

Ming Ming, Chief Economist at CITIC Securities, explained that overnight funds account for the vast majority of trading in the interbank market, and the short-term rate is the cornerstone of the entire interest rate system. Refined regulation can narrow funds-side volatility, smooth the transmission channels of monetary policy, and promote the stable and efficient flow of financial resources to the real economy. Today, the central bank's open market operations have formed a clearly tiered set of regulatory tools: sudden single-day fund fluctuations are addressed quickly by overnight reverse repos; short-term pressure lasting several days is smoothed by the 7-day reverse repo; and monthly or medium-to-long-term fund gaps are balanced by leveraging medium and long-term tools. These tools have clear divisions of labor and operate in synergy.

This multi-layered liquidity regulation system serves as a microcosm of the implementation of the "15th Five-Year Plan" (2026-2030) modern monetary policy framework. Lu Lei, Deputy Governor of the People's Bank of China, stated at a press conference that during the "15th Five-Year Plan" period, the central bank will continue to optimize the framework of a modern monetary policy system with Chinese characteristics, conduct open market operations more flexibly and precisely, guide short-term money market rates to operate smoothly around the policy rate, and open up the transmission path from the policy rate to various market rates.

For banking institutions, this round of precise "liquidity replenishment" helps them smoothly navigate tax-period pressures, stabilize liability costs, and ensure credit continues to flow to key areas of the real economy, such as small and micro enterprises and the manufacturing sector. For ordinary people, these operations will not directly lead to changes in deposit or loan rates or wealth management product yields. However, these minor adjustments behind the scenes of the financial system can continuously resolve short-term funding disruptions and provide a foundation for the recovery of the macroeconomy.

From relying primarily on the 7-day reverse repo in the past to the coordinated use of overnight, 7-day, and 14-day tenor tools today, China's liquidity regulation has officially transitioned from broad, crude support to fine-tuned, precise injection. As overnight reverse repos move toward normalization, this daily-settled, flexible, and refined regulatory model will continuously maintain reasonably ample market liquidity and underpin the steady improvement of the economy.

Supervised by Wang Lei. Reported by Xing Sijia.