April Liquidity Outlook: Likely Seasonal Easing

Ask AI · The central bank’s reverse repo issuance hits a new low—what kind of stability signal is being released?

After smoothly crossing the end of the quarter, looking ahead to April, many institutions expect that liquidity conditions will likely ease seasonally. Attention is focused on whether the central bank will continue using outright reverse repo operations to drain mid-term liquidity and thereby influence the market.

On the first trading day of April, the central bank carried out a 500 million yuan, 7-day reverse repo operation using a fixed-rate and quantity bidding approach.

Wang Qing, Chief Macro Analyst at Ehing Capital, said that on April 1 the central bank conducted a 7-day reverse repo with a size that was the smallest in more than a decade. The direct reasons were that recent liquidity conditions have remained steady but slightly loose, and that liquidity at the beginning of the month turned wider; at the same time, this also sends a signal to guide market liquidity to remain stable, preventing key market rates from deviating excessively downward from the policy rate, which helps stabilize market expectations.

The fixed-income team at Caitong Securities believes that in April liquidity will most likely remain relatively loose, while liquidity will be weaker on a tiered basis compared with March, and the overall feel of liquidity for non-bank entities will be comparatively better. Specifically, on the optimistic side: (1) net financing of government bonds is roughly in line with prior levels, but attention should be paid to the issuance of special treasury bonds after the full-year plan is released; (2) April credit will weaken seasonally; (3) the amount of negotiable certificates of deposit maturing will fall back; (4) wealth management funds are leaving the market. On the downside side: (1) the maturity schedule for medium- and long-term liquidity increases to 2.3 trillion yuan (prior value: 2.05 trillion yuan); (2) a heavy tax month leads to increased tax payment outflows.

West China Securities believes that in April, liquidity conditions will most likely show a seasonal easing trend.

The firm noted that when looking closely at the factors affecting April’s liquidity, reduced pressure from fiscal spending and government bond supply may be an important force driving a marginal easing in liquidity in April. The pressure from government bond supply in April may not be large. Preliminary estimates suggest that April’s net financing for government bonds may be around 0.93 trillion yuan to 1.03 trillion yuan, roughly comparable to March’s net financing level of 23k yuan. April liquidity also faces two headwinds. On one hand, at the beginning of the quarter, tax payment pressure is relatively high, with average annual tax payment scale of 1.8 trillion yuan over 2023–2025. On the other hand, the medium- and long-term funding gap maturing in mid-April is larger than that of March, with cumulative maturities of 2.30 trillion yuan. Moreover, given that the current cumulative balance of medium- and long-term funds (excluding government bond buy-and-sell) still stands at a historical high of 14.4 trillion yuan, and that liquidity-disrupting factors at the beginning of the quarter have weakened, the central bank’s pressure to maintain stability may ease somewhat. It is not ruled out that the central bank may continue with reduced-volume injection to drain part of the redundant funds.

In March, the central bank net drained mid-term liquidity through outright reverse repo operations.

CITIC Securities believes that recently, the central bank has displayed characteristics of fine-tuned liquidity management. In March, outright reverse repos totaled a net drainage of 300 billion yuan, the first time since June 2025. This is based on the current situation of continued ample funding in the banking system and reflects the central bank’s proactive adjustment approach—“cutting peaks and filling valleys”—aiming to prevent funds from accumulating and idling. Given that the monetary policy tone remains clearly steady and moderately loose, if funding conditions tighten later due to factors such as government bond issuance, it is expected that the central bank will still flexibly use quantity-based tools to respond to potential liquidity pressures.

“During the recent period when liquidity conditions remained steady but slightly loose, the central bank net drained 250 billion yuan of mid-term liquidity in March, with the aim of guiding key market rates to fluctuate within a reasonable range around the policy rate. As a result, it is not ruled out that in April outright reverse repo operations will continue to be implemented with net drainage, and that key market rates such as the DR007 and the 1-year interbank certificates of deposit maturing yields for commercial banks (AAA-rated) may return to their average levels or rise slightly,” Wang Qing said.