China continues to drain liquidity from banks this week

China's central bank continued to drain liquidity from the banking system this week, though less sharp than last week.

The People's Bank of China (PBOC) took 1.1 billion yuan (180 million U.S. dollars) out of the banking system this week, far from the amount of 37 billion yuan last week.

The central bank on Thursday injected liquidity into the banking system, through 10 billion yuan of 14-day reverse repurchase agreement (repo) operations.

The yield of the reverse repo, a process of central bank purchasing securities from commercial banks with an agreement to resell them at a future date, stood at 4.10 percent, said a PBOC statement.

A total of 100 billion yuan worth of central bank bills and 36 billion yuan of reverse repo are due this week, leading to net injection of 64 billion yuan.

Meanwhile, the central bank renewed 85.1 billion yuan of three-year central bank bills on Monday and carried out 10 billion yuan of seven-day reverse repo on Tuesday, resulting in net drainage of 75.1 billion yuan.

To sum up, together with 10 billion of injections on Thursday, this week saw net liquidity loss of 1.1 billion yuan.

E Yongjian, a financial analyst with the Bank of Communications, said the monetary policies this year will maintain stable and neutral to avoid sharp rises in property prices and check risks in local government debts and shadow banking.

Short-term borrowing costs were mixed in China's inter-bank market on Thursday. The overnight Shanghai Interbank Offered Rate (Shibor) dropped 4.7 basis points at 2.97 percent.

But the one-week Shibor rose 1.2 basis points to 3.49 percent and the two-week Shibor climbed 3.30 basis points to 3.8 percent.