April Liquidity Outlook: Likely Seasonal Easing

After smoothly passing the end of the quarter, with an eye on April, many institutions expect that liquidity conditions are very likely to loosen seasonally. Attention is drawn to whether the central bank will continue to drain medium-term liquidity through outright reverse repurchase operations.

On the first trading day of April, the central bank conducted a 5 billion yuan 7-day reverse repo operation, using a fixed interest rate and a quantity bidding method.

Wang Qing, Chief Macroeconomic Analyst at Oriental Capital (Dongfang Jincheng), pointed out that on April 1, the central bank conducted a 7-day reverse repo with the smallest scale in over ten years. The direct reason is that recent liquidity conditions have continuously remained stable yet slightly loose, along with liquidity becoming wider at the beginning of the month. At the same time, this also sends a signal to guide market liquidity stability and avoid major market interest rates deviating excessively downward from the policy rate, which helps stabilize market expectations.

The Fixed Income team of Caitaong Securities believes that in April, liquidity is very likely to remain relatively loose. Meanwhile, the tiering structure is expected to weaken compared with March, and the non-bank financial sector’s liquidity experience is relatively better. Specifically, on the optimistic side: (1) net financing of government bonds is roughly in line with earlier levels, but attention should be paid to the issuance of special government bonds after the full-year plan is released; (2) credit in April will seasonally weaken; (3) the amount of negotiable certificates of deposit maturing will fall; (4) wealth management funds will see outflows. In terms of disruptive factors: (1) the maturity size of medium- and long-term liquidity rises to 2.3 trillion yuan (from the prior value of 2.05 trillion yuan); (2) it is a heavy tax month, and tax-payment settlement flows increase.

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

The firm pointed out that, when examining the factors affecting liquidity in April, easing pressure from fiscal spending and government bond supply may be an important force driving marginal loosening of liquidity in April. The pressure from government bond supply in April may not be large. Initial estimates suggest that net financing of government bonds in April may be in the range of 0.93 trillion yuan to 1.03 trillion yuan, roughly comparable to the net financing level of 933 billion yuan in March. Liquidity in April also has two negative factors. On the one hand, at the beginning of the quarter and month, tax payment pressure is greater; the average tax payment scale during 2023 to 2025 is 1.8 trillion yuan. On the other hand, the medium- and long-term funding maturity gap in mid-April is larger than in March, with a total of 2.30 trillion yuan maturing. Moreover, considering that the current cumulative balance of medium- and long-term funds (excluding government bond buying and selling) still remains at a historical high of 14.4 trillion yuan, and with the liquidity disturbance factors at the beginning of the quarter and month weakening, the pressure on the central bank to maintain stable funding levels has eased. It is not ruled out that the central bank may continue to carry out liquidity operations with reduced volume and withdraw part of the redundant funds.

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

CITIC Securities believes that recently, the central bank has shown characteristics of precise and fine-tuned control in liquidity management. In March, outright reverse repurchases in net terms totaled 300 billion yuan, the first such net drain since June 2025. This is based on the proactive adjustment under the sustained condition of ample liquidity in the banking system, reflecting the central bank’s precise operation approach of “cutting peaks and filling valleys,” aiming to prevent liquidity buildup and idle funds. Given the clear stance of maintaining a prudent and moderately loose monetary policy, if liquidity tightens in the future due to factors such as government bond issuance, the central bank is expected to flexibly use quantity-based tools to address potential liquidity pressure.

“During the recent period of liquidity remaining stable yet slightly loose, in March the central bank net drained 250 billion yuan in medium-term liquidity through its operations, aiming to guide major market interest rates to fluctuate around the policy rate within a reasonable range. Therefore, it is not ruled out that in April, outright reverse repurchase operations will continue to be implemented on a net basis, and the average yields of key market interest rates such as DR007 and the 1-year bank negotiable certificates of deposit (AAA-rated) may rebound or rise slightly,” Wang Qing said.