On the first day after the season, July 1st, the central bank's official website issued an announcement stating that it conducted 1310 billion yuan of 7-day reverse repurchase operations in a fixed interest rate and quantity bidding manner, with the bid amount and winning amount both being 1310 billion yuan, and the operation interest rate was 1.4%.

According to Wind data, this week (from June 30th to July 4th), the maturing scale of reverse repurchase increased to 2.0275 trillion yuan, and the reverse repurchase faced a large-scale net redemption. The industry believes that the market will welcome seasonal relaxation in July, and the interest rate on funds is expected to stabilize slightly downward. The economy ran strongly in the first half of the year, and it is unlikely that major incremental policies such as interest rate cuts and reserve requirement cuts will be implemented in the short term. However, overall, there is still room for the interest rate on funds to decline in the second half of the year.

The market interest rate on funds stabilized slightly downward

Last week (from June 23rd to 27th), the central bank's net injection of liquidity in the open market exceeded 1 trillion yuan. Although it was across the season, under the enhanced care of the central bank, the interest rate on funds remained stable.

This week (from June 30th to July 4th), the maturing scale of reverse repurchase increased to 2.0275 trillion yuan, and the reverse repurchase faced a large-scale net redemption. The industry believes that the central bank's offsetting strength at the beginning of July may become the key to testing whether the central bank's attitude of care will continue.

Looking back at June 30th, the market interest rates fluctuated. The interbank offered rate (Shibor) overnight rose by 5.1 basis points to 1.422%, and the 7-day Shibor rose by 9.5 basis points to 1.763%. From the performance of repurchase rates, the weighted average interest rate of DR007 rose to 1.9159%, higher than the policy interest rate level.

On July 1st, the funds market experienced a comprehensive downward trend, with Shibor overnight falling by 5.5 basis points to 1.367%, 7-day Shibor falling by 23.3 basis points to 1.53%, and 14-day Shibor falling by 19.7 basis points to 1.569%.

Wang Qing, the chief macroanalyst of Dongfang Jin Cheng, told the reporter of Beijing Business Daily that after the bank's mid-year assessment and the peak of credit issuance, the market will welcome seasonal relaxation in July, and the interest rate on funds is expected to stabilize slightly downward.

Recently, the Monetary Policy Committee of the People's Bank of China held the second quarter meeting of 2025, studying the main ideas of monetary policy for the next stage, and suggesting to increase the intensity of monetary policy regulation, improve the forward-looking, targeted, and effective nature of monetary policy regulation, and flexibly grasp the intensity and rhythm of policy implementation according to the economic and financial situation at home and abroad and the operation of financial markets. Maintain ample liquidity, guide financial institutions to increase the intensity of monetary credit issuance, and ensure that the growth of social financing scale and money supply matches the expected goals of economic growth and the general price level.

At the same time, it will strengthen the guidance of the central bank's policy interest rate, improve the market-oriented interest rate formation and transmission mechanism, give play to the role of the market interest rate pricing self-discipline mechanism, strengthen the implementation and supervision of interest rate policies, and promote the reduction of comprehensive financing costs in society. Observe and evaluate the operation of the bond market from the perspective of macro-prudential supervision, and pay attention to changes in long-term yields.

"We expect that the central bank will implement a large-scale net withdrawal of funds at the beginning of July to avoid the rapid decline of market interest rates." However, Wang Qing also pointed out that in the meeting, the central bank reiterates "maintaining sufficient market liquidity." This is both the reason for the enhanced stability of the money market at the mid-year point this year, and means that the money market will continue to maintain a stable and slightly loose pattern in the third quarter, and the central bank will continue to protect liquidity.

The possibility of interest rate cuts and reserve requirement cuts is unlikely in the short term

Looking forward, the industry believes that the state of liquidity relaxation is expected to continue further. Referencing the rules in recent years, the market will often usher in "spontaneous" relaxation in July. The central bank's willingness to protect liquidity will not weaken significantly as the cross-season ends.

Wang Qing further pointed out that on the one hand, the economy ran stronger in the first half of the year, and it is unlikely that major incremental policies such as interest rate cuts and reserve requirement cuts will be introduced in the short term.

It can be seen that the quarterly meeting did not mention "timely reserve requirement and interest rate cuts" directly again, but changed to "flexibly grasp the intensity and rhythm of policy implementation", and emphasized "preventing the empty rotation of funds", which means that the possibility of a significant drop in July's interest rates is relatively small.

On the other hand, the current external environment is characterized by significant uncertainty, and the problem of insufficient effective domestic demand needs to be solved. In the process of the regulatory authorities "guiding financial institutions to increase the intensity of monetary credit issuance" and "promoting the reduction of comprehensive financing costs in society," the probability of introducing new major strict regulatory measures is not high, and the space for the central rate of interest rate to rise is more limited.

However, looking ahead, it is expected that market liquidity will still be disturbed by factors such as government bond issuance, large-scale maturity of funds, and financial institution evaluations. Focusing on "maintaining sufficient market liquidity," Wang Qing said that if the time is extended to the second half of the year, in addition to the possibility of the central bank continuing to implement reserve requirement cuts, it will also timely resume open market operations in government bonds, combining reserve requirement cuts to inject long-term liquidity into the banking system. In addition, in the second half of the year, the central bank will comprehensively use tools such as MLF, buy-and-hold reverse repurchase, and government cash deposits to keep medium-term liquidity in a net injection state. In the short term, the central bank will mainly use collateralized reverse repurchase to smooth out peaks and valleys, and to smooth out fluctuations.

Overall, under the expectation of interest rate cuts, the interest rate for funds in the second half of the year still has room to fall, and volatility will also be better controlled. Market liquidity will continue to be in a relatively stable and abundant state.

"On the one hand, this will show that monetary policy remains supportive, strengthens countercyclical adjustment, and at the same time, it will also help stabilize market expectations and effectively control financial risks. We judge that if a major risk event occurs in the future, leading to a sharp fluctuation in market liquidity, it is not excluded that the central bank will use policy tools such as temporary reverse repurchase and significantly increase buy-and-hold reverse repurchase operations in a timely manner to offset market fluctuations," said Wang Qing.

Beijing Business Journal Reporter, Liu Sihong