PBOC assures liquidity

The People's Bank of China (PBOC), China's central bank, said on Thursday that it has injected liquidity to the market via short-term liquidity operations (SOLs).

The bank posted on its microblog that SOLs had been conducted "recently". Dates and methods were not specified. The statement follows concern of a liquidity shortage, after reverse repurchase operations ceased on Dec. 3. "Market liquidity toward the end of each year is largely affected by fiscal income and expenditure," said the post, adding that the PBOC will continue to be flexible in its use of SLOs.

The SLO is a supplementary measure for open market operations, which allows a central bank to control short-term liquidity supply and demand and prevent sharp fluctuations in the money market.

The recent tightening of liquidity has bred fears of liquidity shortage and rising money rates. The benchmark interbank repurchase rates for one and seven day products both rose sharply on Thursday to 3.83 percent and 6.6 percent, respectively.

Meanwhile, the Shanghai Interbank Offered Rate, which shows the cost of interbank borrowing, also gained noticeably on Thursday, with the overnight Shibor rising 25.8 basis points to 3.846 percent. Seven day and two week rates both increased to 6.472 percent and 6.218 percent, respectively.