China's central bank skipped open market operations on Friday after days of cash injections as market liquidity conditions improved.
The People's Bank of China (PBOC) said in a statement that liquidity in the banking system was "at a relatively high level" as the government sped up fiscal spending near the end of the month.
Faster fiscal expenditures mean a larger amount of fiscal deposits flowing into commercial banks from the central bank, thus improving liquidity.
In Friday's interbank market, the overnight Shanghai Interbank Offered Rate, which measures the costs at which banks lend to one another, fell 5.3 basis points to 2.604 percent.
Friday's break came after the PBOC conducted four days of open market operations consecutively this week to ease liquidity strain as lenders needed funds ahead of the quarterly assessment of their financial health.
The central bank made a net cash injection of 80 billion yuan (11.6 billion U.S. dollars) in total from Monday to Thursday via reverse repos, a process in which the central bank purchases securities from banks through bidding with an agreement to sell them back in the future.
In contrast, the PBOC withdrew 120 billion yuan of funds from the money market last week.
In an article published Thursday, the Financial News, a newspaper under the central bank, said the PBOC would not change its stance of "maintaining reasonable and necessary liquidity."
The cash strain was not expected to sustain, the paper cited analysts as saying.
Earlier this month, the PBOC halted reverse repo operations for two days to avoid excessive liquidity. It has also raised interest rates for open market operation tools this year.
China has pledged to pursue a prudent and neutral monetary policy in 2017, with the M2, a broad measure of the money supply, to grow by around 12 percent, one percentage point lower than the 2016 target.
