PBOC continues liquidity injection before holiday

China's central bank continued to pump liquidity into the market before a week-long holiday in an effort to avoid a quarter-end cash crunch like the one that rocked financial markets in late June.

The People's Bank of China (PBOC) on Thursday added 80 billion yuan (13.01 billion U.S. dollars) in funds into the banking system through reverse repurchase (repo) agreements, a process in which central banks purchase securities from banks with an agreement to resell them at future dates.

This came after Tuesday's 88-billion yuan reverse repo operation, the largest single-day liquidity injection since Feb. 7, when PBOC flooded the interbank market with 410 billion yuan in its open market operations before the Lunar New Year holiday.

Thursday's 14-day reverse repo was priced to yield 4.1 percent, according to a statement on the PBOC website.

In Thursday's interbank market, the overnight Shanghai Interbank Offered Rate (Shibor), which measures the cost at which Chinese banks lend to one other, dropped by 23.5 basis points to 3.11 percent, falling for three consecutive days. The rate surged to a record high of over 13 percent in June.

The liquidity injections revealed the central bank's intent to ease liquidity strains felt by commercial banks before the National Day holiday, from Oct. 1 to 7, when a surge in cash demand is expected due to travel expenses and holiday shopping.

Chinese commercial banks also have to put aside more money at the end of each fiscal quarter to meet capital requirements and payments on maturing wealth management products.