China’s Central Bank Injects ¥9000 Billion RMB ($125.13 Billion USD) via MLF to Offset Pre-Lunar New Year Liquidity Strain

• MLF Injection: ¥9000 billion RMB Gross
• MLF Net Change: ¥7000 billion RMB (after ¥2000 billion maturation)
• Reverse Repos: ¥3000 billion RMB deployed
• Total Net Liquidity: ¥1 trillion RMB

The People’s Bank of China (Zhongguo Renmin Yinhang 中国人民银行) just made a massive move to keep money flowing through the banking system right before one of the year’s biggest holidays.

Here’s what happened, why it matters, and what it means for China’s economy heading into 2026.

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The Big Picture: A ¥9 Trillion Liquidity Injection

On January 22, the People’s Bank of China announced it would conduct a Medium-term Lending Facility (MLF) operation the very next day.

The numbers are substantial:

• ¥9000 billion RMB ($125.13 billion USD) injected into the banking system
• 1-year maturity on all new loans
• Uses a fixed-quantity, interest rate tender, and multiple-price placement method

To put this in perspective, this is not a small regulatory tweak.

This is the central bank essentially flooding the banking system with cash to make sure everything stays liquid and stable during the Lunar New Year holiday season.

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Why This Timing Matters: The Pre-Lunar New Year Cash Crunch

Every year before Lunar New Year, something predictable happens: people withdraw cash.

Lots of it.

It’s seasonal, it’s expected, but it still creates liquidity pressure on the banking system.

Wang Qing (Wang Qing 王青), Chief Macro Analyst at Golden Credit Rating (Dongfang Jincheng 东方金诚), breaks down the central bank’s thinking:

“As the Lunar New Year approaches, there is a significant seasonal increase in cash withdrawals by residents.”

The central bank’s response?

Instead of cutting Reserve Requirement Ratios (RRR)—which would be a bigger, more permanent policy shift—they’re using the MLF tool to inject short-term liquidity where it’s needed most.

Think of it like this:

• RRR cuts = Long-term policy changes (like loosening the faucet permanently)
• MLF injections = Short-term relief (like turning up the water pressure temporarily)

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The Real Numbers: Understanding the Net Injection

Here’s where the analysis gets interesting.

The ¥9000 billion RMB ($125.13 billion USD) headline sounds massive, but it’s not all new money hitting the system.

According to Wang Qing’s breakdown:

• MLF loans maturing in January: ¥2000 billion RMB ($27.81 billion USD)
• New MLF injection: ¥9000 billion RMB ($125.13 billion USD)
• Net new liquidity from this operation: ¥7000 billion RMB ($97.32 billion USD)

But wait—there’s more happening simultaneously.

The central bank also deployed outright reverse repos (another liquidity tool) worth ¥3000 billion RMB ($41.71 billion USD) across two different time periods in January.

Add it all up:

Total medium-term liquidity net injection in January = ¥1 trillion RMB ($139.04 billion USD)

Wang Qing notes this is “a significant increase compared to previous levels.”

Translation: The central bank is being more aggressive than usual in keeping liquidity abundant.

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Why So Much, So Soon? Three Key Reasons

The central bank isn’t just throwing cash at the wall to see what sticks.

There are three concrete reasons behind this expanded MLF operation:

1. Supporting Major Projects and Economic Recovery

China’s government needs funding for big-ticket infrastructure and priority sector projects.

New local government debt limits for 2026 have already been announced, which signals a surge in government bond issuance coming in January 2026.

The MLF injection ensures banks have the capital to absorb these new government bonds without straining their balance sheets.

2. Amplifying the “Head Start” effect for Bank Lending

Following the completion of ¥5000 billion RMB ($69.52 billion USD) in new policy-based financial instruments back in October 2025, China’s credit expansion continues.

Banks are primed to lend heavily in January—what analysts call the “Head Start” effect.

More liquidity means more lending capacity, which fuels credit expansion and supports economic activity early in the year.

3. Countering Seasonal Cash Withdrawal Spikes

The most straightforward reason: prevent a liquidity squeeze during peak holiday cash withdrawals.

By injecting this much liquidity through MLF operations, the central bank avoids having to cut RRR—which would signal deeper economic concerns and be harder to walk back later.

This is a targeted, temporary fix for a seasonal, predictable problem.

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What’s Next? The Future Monetary Policy Outlook

A New Approach: “Small Steps” in Monetary Policy

Sheng Songcheng (Sheng Songcheng 盛松成), Professor at China Europe International Business School (Zhong-Ou Guoji Gongshang Xueyuan 中欧国际工商学院) and Director of the China Chief Economist Forum Research Institute, offers an important insight:

“As the central bank’s toolkit expands, it can more effectively smooth out short-term market fluctuations.”

This reflects a shift in how China’s central bank operates.

Instead of big, dramatic policy moves (like cutting RRR or interest rates), they’re using multiple, smaller tools—reverse repos, MLF operations, treasury bond trading—to fine-tune liquidity.

“Small steps in monetary policy have become the norm,” according to Sheng, though he acknowledges that RRR and interest rate cuts may still happen if liquidity gaps widen beyond what these tools can handle.

Three Critical Factors to Watch in 2026

• Fiscal policy implementation speed and government bond volume.
• Stabilization and health of bank net interest margins (NIM).
• Financial stability focused on stock and bond market volatility.

Sheng identifies three key variables that will shape future monetary policy decisions:

1. The pace of fiscal policy implementation and government bond issuance — How fast is the government spending? How much debt is being issued?
2. The stabilization of bank net interest margins — Are banks’ profit margins staying healthy as deposit maturities shift and re-lending rates adjust?
3. Financial stability, with special attention to bond and stock market volatility — Are asset prices getting overheated? Is there systemic risk building?

Each of these factors could trigger more aggressive monetary easing—or signal a need to pump the brakes.

The Stock Market Problem: Why an Interest Rate Cut May Wait

Wen Bin (Wen Bin 温彬), Chief Economist at China Minsheng Bank (Zhongguo Minsheng Yinhang 中国民生银行), adds another crucial perspective:

“While there is room for RRR and interest rate cuts in 2026, the timing remains critical.”

Here’s the nuance: China’s stock market has been heating up recently.

If the central bank cuts interest rates now, it could supercharge asset price inflation—pushing stock valuations even higher and creating bubble-like conditions.

That’s a policy mistake Wen Bin wants to avoid.

Instead, he expects the central bank to:

• Continue using MLF operations and reverse repos to manage liquidity
• Leverage treasury bond trading to support government debt issuance
• Keep interest rates steady for now

Once the stock market stabilizes or fiscal conditions shift, interest rate cuts could come back on the table.

But rushing into that move while equities are soaring could create worse problems down the road.

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The Bigger Picture: What This Tells Us About China’s Economic Direction

This ¥1 trillion RMB ($139.04 billion USD) liquidity injection reveals several important truths about where China stands:

• The economy still needs central bank support — Without this injection, liquidity would tighten too much, signaling underlying weakness
• The central bank is being proactive, not reactive — They’re anticipating seasonal pressures and addressing them preemptively
• Policy is shifting toward precision tools over blunt force — MLF operations, reverse repos, and targeted measures are becoming the default, not emergency measures
• Asset price inflation is now a policy concern — The willingness to tolerate stock market heating is creating hesitation around interest rate cuts
• Government bond issuance is about to accelerate — The early announcement of 2026 debt limits signals major fiscal spending ahead

For investors, founders, and market watchers: This is a moment of controlled stimulus, not panic mode.

The central bank is walking a tightrope between supporting growth and avoiding asset bubbles—and they’re doing it with precision instruments rather than sledgehammers.

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References

• Central Bank Conducts 900 Billion Yuan MLF Operation Today – National Business Daily
• Open Market Operations Notice – People’s Bank of China
• Market Analysis on MLF Injection – East Money Information