As the Spring Festival approaches, the market's attention to liquidity continues to rise. On January 26th, the central bank launched a 7-day reverse repurchase operation worth 150.5 billion yuan, with an operating interest rate of 1.40%, unchanged from before. Due to the maturity of 200 billion yuan of 1-year medium-term lending facility (MLF) and 158.3 billion yuan of 7-day reverse repurchase on the 26th, a net withdrawal of 207.8 billion yuan was achieved on the same day. Throughout the week, the challenges faced by liquidity should not be underestimated. According to Wind data, the total amount of reverse repurchase due in the public market this week (January 26-30) reached 1181 billion yuan, and combined with the MLF due at the beginning of the week, the natural net withdrawal pressure of funds exceeded 1.3 trillion yuan. But this potential tightening pressure has been smoothed out by the pre response of monetary policy operations. On January 23rd, the central bank launched a 900 billion yuan MLF operation, achieving a net investment of 700 billion yuan after hedging against the monthly maturity amount. Combined with the net investment of 300 billion yuan through buyout reverse repurchase this month, the total net investment in liquidity in mid January has reached 1 trillion yuan, and its investment intensity and pace have significantly exceeded usual. Considering the approaching Spring Festival, the central bank's increase in net liquidity injection is an important means to maintain stable market liquidity. ”The Chief Economist of CITIC Securities, Mingming, told reporters that this series of operations aims to cope with the "triple tightening" pressure of liquidity caused by seasonal, fiscal, and credit factors. Wang Qing, Chief Macro Analyst of Dongfang Jincheng, also pointed out that the resonance of these factors may lead to a temporary tightening of funds, and the central bank's "advance quantity" operation has effectively stabilized market expectations. The operational effect is directly reflected in the money market interest rates. On the 26th, despite achieving a net recovery in the public market, the opening price of 1-day collateralized repo (DR001) between banks and deposits was 1.3%, and the opening price of 7-day collateralized repo (DR007) between banks and deposits was 1.4%, both lower than the weighted average price of the previous day, indicating that the short-term capital supply in the interbank system is still abundant and market sentiment is stable. While providing sufficient overall supply and smoothing short-term fluctuations, the central bank's policy focus is also extending towards deeper areas of structural optimization and cost reduction. Recently, the central bank has implemented a series of optimization reforms for structural monetary policy tools, including lowering the interest rates of tools such as agricultural and small-scale refinancing, technological innovation refinancing, and increasing related quotas. At the same time, the regulatory framework of monetary policy in short-term interest rates has also shown a more refined new feature. Zou Lan, Vice Governor of the People's Bank of China, recently stated at a press conference of the State Council Information Office that he will "guide overnight interest rates to operate near the policy interest rate level". This important statement has been interpreted by the market as a shift in the focus of observation and constraint of the central bank's short-term interest rate regulation towards the more sensitive overnight end. In fact, since the first quarter of 2025, the People's Bank of China has conducted comparative analysis between DR001 and 7-day reverse repo rates in the "China Monetary Policy Implementation Report" for three consecutive quarters. The industry generally believes that this marks a significant increase in the importance of DR001 in monetary policy operations. According to a research report by Guotai Haitong Securities, this change is a natural extension of the improved interest rate corridor system. With clearer interest rate corridors and richer tools, the short-term funding situation is expected to remain reasonably abundant and balanced. Industry insiders say that the combined effect of the "price reduction" of structural tools and the "refinement" of short-term interest rate regulation is conducive to guiding financial vitality to flow more accurately and efficiently to policy encouraged areas in the macro context of abundant liquidity, achieving a policy combination effect of "total stability and structural optimization". In addition to substantial liquidity injection and tool innovation, the policy level's clear statement on the future monetary policy space has further consolidated the market's long-term loose expectations and confidence. The Governor of the People's Bank of China, Pan Gongsheng, recently stated in an interview that in terms of aggregate policy, he will flexibly and efficiently use various monetary policy tools such as reserve requirement ratio cuts and interest rate cuts to maintain sufficient liquidity, and pointed out that "there is still some room for reserve requirement ratio cuts and interest rate cuts this year". Vice Governor Zou Lan also emphasized that the central bank will "flexibly grasp the policy intensity and pace according to the economic and financial situation and macroeconomic regulation needs, and comprehensively use various monetary policy tools". These authoritative statements are interpreted by the market as indicating that monetary policy will continue to maintain a stable and loose tone, and has the ability to increase countercyclical adjustments when necessary, creating a suitable monetary and financial environment for economic recovery and improvement. From the perspective of timing, after the MLF achieved a large net investment in January, the market generally believes that the urgency of reducing reserve requirement ratios before the Spring Festival has decreased. Dong Ximiao, Chief Researcher of the China Merchants Association, believes that after achieving a large-scale net investment in MLF, the necessity and possibility of reducing reserve requirement ratios in the short term have decreased. But he also pointed out that reserve requirement ratio cuts, as a signal of deep easing, remain an important reserve tool in the policy toolbox for 2026. Market institutions still have expectations for further easing of monetary policy throughout the year. Wang Qing predicts that the central bank may implement 1 to 2 reserve requirement ratio cuts in 2026, with a magnitude of 0.5 to 1 percentage point; Meanwhile, there is a possibility of two interest rate cuts, with a range of 20 to 30 basis points. Mingming stated that based on past experience, after the reduction of loan interest rates, there is also room for overall interest rate cuts. With a large number of fixed deposits expiring in the first quarter, the pressure on bank interest rates has eased, and it is expected that the policy interest rate will be lowered in the second quarter. (New Society)