China's central bank suspends treasury bond purchases

The People's Bank of China (PBOC) announced on Friday that it has decided to temporarily suspend treasury bond purchases in the open market, starting from this month.

The central bank said the decision was made as demand exceeded supply on the government bond market recently, noting that bond purchases will resume at an appropriate time in accordance with the supply and demand situation.

This round of treasury bond purchases in the open market was from August 2024.

China's central bank announced on August 30 of 2024 that it conducted open market government bond transactions, resulting in a net purchase of bonds with a face value of 100 billion yuan ($14 billion).

Analysts interpret the net bond purchase by the central bank as a clear signal of its intensified monetary policy efforts to support stable economic growth and expand domestic demand, according to the Xinhua News Agency. 

Pan Gongsheng, governor of the People's Bank of China, said at the 15th Lujiazui Forum in June that incorporating government bond transactions into its monetary policy toolkit does not signal a shift toward quantitative easing.

He stated that the inclusion of government bond operations is intended to serve as a channel for base currency issuance and a tool for liquidity management. This approach is designed to work in conjunction with other instruments to create a conducive liquidity environment.

Since then, the central bank has conducted open market government bond transactions, resulting in net purchases of bonds with a face value of 200 billion yuan in September, 200 billion yuan in October, 200 billion yuan in November and 300 billion in December.

The reasons for open market treasury bond trading operations are all to "enhance the counter-cyclicality of its monetary policy and maintain reasonable liquidity in the banking system," according to PBOC announcements.

China's central bank has outlined its monetary and financial priorities for 2025, and it will implement a moderately loose monetary policy in 2025, forestall and defuse financial risks in key areas, and further deepen financial reform and high-standard opening up.

Unveiling its monetary policy for this year, the central bank explained that it will implement a moderately loose monetary policy aimed at fostering a stable economic growth environment.