Since this year, the People's Bank of China (hereinafter referred to as the "central bank") has implemented a moderately loose monetary policy, and comprehensively used such tools as deposit reserve, open market operation, medium-term lending facility (MLF), and refinancing rediscount to maintain sufficient liquidity, providing a suitable liquidity environment for promoting the sustained recovery of the economy. In early June, the central bank added a liquidity allocation table for various central bank tools on its official website, which made policies more transparent, effectively guided and stabilized market expectations. Many interviewed experts agreed that in the second half of the year, the monetary policy is expected to make further efforts in the direction of moderate easing, there is still room for further reduction of reserve ratio and interest rate, and treasury bond trading operations may also restart. Multiple tools work together to protect liquidity. In the first half of this year, the central bank implemented a moderately loose monetary policy and comprehensively used multiple monetary policy tools to maintain sufficient liquidity in the banking system; Flexibly grasp the intensity and pace of open market operations, timely smooth out short-term fluctuations such as fiscal taxation and government bond issuance, and maintain the stable operation of money market interest rates. From the perspective of the operation of major liquidity instruments, since the beginning of this year, the central bank has carried out daily open market 7-day reverse repurchase operations, fully meeting the needs of primary traders. At special times, it will also initiate 14 day reverse repurchase operations. For example, there are many factors affecting liquidity before the Spring Festival, and the central bank promptly launched a 14 day reverse repurchase operation. This year, a total of 2.6 trillion yuan of cross Spring Festival liquidity has been injected to ensure that various institutions can smoothly cross festivals. Positioned as a Medium Term Lending Facility (MLF) operation to provide medium - and long-term liquidity to financial institutions, a total of 2.35 trillion yuan was carried out in the first half of the year, with a term of one year. It is worth mentioning that in March this year, the central bank announced that the MLF operation would be changed to fixed quantity, interest rate bidding, and multi price bidding, without a unified bidding rate. At this point, MLF has exited the policy interest rate system and returned to its position as a liquidity injection tool. In October last year, the central bank launched a buyout style reverse repurchase operation with a term not exceeding one year, filling the tool gap between 7-day reverse repurchase and 1-year MLF in the open market and further improving the accuracy of liquidity management. As of now, since the beginning of this year, the central bank has carried out a total of 4700 billion yuan of 3-month buyout reverse repurchase operations and 2.5 trillion yuan of 6-month buyout reverse repurchase operations. During the advertising process, the central bank operates more flexibly and finely. In June, the central bank broke the tradition of announcing the results of the month's buyout reverse repurchase operation at the end of the previous month, and provided advance notice of the scale and duration of the buyout reverse repurchase operation twice on June 5th and June 13th. In early June, the central bank announced the launch of a buyout style reverse repurchase operation, creating a good foundation for maintaining overall liquidity throughout the month. The disclosure at the end of the month and the early release also gave the market reassurance. ”Industry experts say that June is at a critical point for liquidity assessment at the end of the first half of the year, coupled with factors such as large-scale maturity of interbank certificates of deposit. Financial institutions have a high demand for liquidity throughout the month, and the central bank has provided medium-term funding support in advance, reflecting its care for the market. Since the beginning of this year, the central bank has also timely carried out the Standing Loan Facility (SLF) operation, providing sufficient short-term liquidity support to local corporate financial institutions as needed, stabilizing market expectations, enhancing the stability of liquidity in the banking system, and preventing liquidity risks. In the first five months of this year, the central bank conducted a total of 24.082 billion yuan in SLF operations. At the same time, the central bank utilizes the SLF interest rate as the upper limit of the interest rate corridor to promote the smooth operation of the money market. At the end of May, the overnight, 7-day, and 1-month SLF rates were 2.25%, 2.40%, and 2.75%, respectively. In addition, on May 7th of this year, the central bank issued a package of financial support measures, including reducing the reserve requirement ratio by 0.5 percentage points and providing long-term liquidity of about 1 trillion yuan to the market. Wen Bin, Chief Economist of Minsheng Bank, told reporters that reducing reserve requirement ratio can effectively smooth out fund fluctuations, stabilize credit expansion, promote domestic demand recovery, and effectively alleviate the pressure on bank net interest margins. There is still room for reserve requirement ratio cuts and interest rate cuts in the second half of the year. Since the beginning of the year, the central bank has accurately supported the real economy through reserve requirement ratio cuts, structural tool deployment, and flexible adjustment of liquidity, focusing on key areas such as technological innovation, green development, and financing for small and medium-sized enterprises. ”Cheng Shi, Chief Economist of ICBC International, stated in an interview with reporters that looking ahead to the second half of the year, China's monetary policy is expected to maintain a loose direction, and there is still a possibility of a rate cut within the year, with a magnitude of 10 to 20 basis points; In addition, a targeted or comprehensive reserve requirement ratio cut of 25 basis points to 50 basis points may be implemented to promote credit expansion, reduce financing costs, and stabilize market expectations. The Chief Economist of CITIC Securities clearly stated that under a moderately loose monetary policy, there is still room for reserve requirement ratio cuts and interest rate cuts. The central bank will use various liquidity tools to support credit injection, government bond issuance, and potential external factors in the second half of the year. In the second half of the year, the external environment still faces great uncertainty. In the process of vigorously boosting domestic demand and making greater efforts to promote the stabilization of the real estate market, monetary policy is expected to further exert moderate easing and maintain market liquidity in a relatively stable and abundant state. ”Wang Qing, Chief Macro Analyst of Dongfang Jincheng, believes that in the context of low price levels, it is expected that the central bank will continue to cut interest rates and reserve requirement ratios in the second half of the year. The rate cut may reach 30 basis points, and the reserve requirement ratio cut may reach 0.5 percentage points. This will guide enterprises and residents to further lower their loan interest rates, reduce the financing costs of the real economy, and stimulate endogenous financing demand. It is worth noting that the central bank increased the purchase and sale of treasury bond in the open market operation last year. This tool is positioned at the base money supply and liquidity management. It can be both bought and sold. It can be flexibly matched with other tools to improve the scientificity and accuracy of liquidity management. However, at the beginning of this year, the oversupply of treasury bond market further intensified, and the yield of 10-year treasury bond once fell below the historical low of 1.6%. In January, the People's Bank of China announced a phased suspension of buying treasury bond in the open market to avoid affecting the allocation needs of investors, and used more other tools to launch base currency to maintain liquidity and the stable operation of the bond market. Up to now, the central bank has not carried out open market treasury bond bond trading operations. In the recently released report on the implementation of China's monetary policy in the first quarter of 2025, the People's Bank of China said that it would continue to observe and evaluate the operation of the bond market from a macro prudential perspective, pay attention to the changes in the yield of treasury bond, and resume operations at the right time depending on the market supply and demand. Clearly, it is believed that there is a possibility to restart the trading operation of treasury bond within the year, but the recent resumption of short-term buying by state-owned banks may not be a deterministic signal, which essentially reflects the continuous improvement of institutional capital utilization pressure, and will also enhance the stability of the overall liquidity environment of the bond market. "In the second half of the year, the central bank may also resume trading of treasury bond bonds in the open market and inject long-term liquidity into the banking system in combination with the reduction of reserve ratio. In addition, it is expected that the central bank will comprehensively use tools such as MLF, buyout reverse repurchase, and treasury cash deposits in the second half of the year to maintain net liquidity in the medium term. In the short term, the central bank may mainly use reverse repo operations to smooth out peak and valley fluctuations. ”Wang Qing stated that overall, there is still room for a downward trend in funding interest rates in the second half of the year, and volatility will be better controlled. Market liquidity will continue to remain relatively stable and abundant. (New Society)