China's central bank conducted net cash injections into the market on Thursday for the fourth straight day this week to ease liquidity strain.
The People's Bank of China (PBOC) conducted 330 billion yuan (about 50billion U.S. dollars) of reverse repos Thursday, pumping a net 310 billion yuan into the market as 20 billion yuan of reverse repos matured.
A reverse repo is a process by which the central bank purchases securities from commercial banks through bidding, with an agreement to sell them back in the future.
On Thursday, the PBOC conducted 160 billion yuan of seven-day reverse repos priced to yield 2.45 percent, 140 billion yuan of 14-day contracts with a yield of 2.6 percent, and 30 billion yuan of 63-day contracts with a yield of 2.9 percent.
Thursday's operation came after a net injection of 150 billion yuan Monday, 140 billion yuan Tuesday and 220 billion yuan Wednesday, as maturing reverse repos and tax payments put pressure on liquidity near the end of the year.
Following the injection, the overnight Shanghai Interbank Offered Rate (Shibor), which measures the cost at which banks lend to one another, dropped 0.6 basis points to 2.8 percent on Thursday.
"The central bank's open market operations are expected to stay neutral during the final quarter to ensure stable liquidity," said JZ Securities analyst Deng Haiqing.
Deng said the chance of a credit crunch is quite slim and the liquidity strain will be eased next week.
The central bank has increasingly relied on open market operations for liquidity management, rather than cuts in interest rates or reserve requirement ratios.
On one hand, the central bank needs enough liquidity to maintain financial stability and support the rebounding economy; on the other, it cannot loosen the credit floodgates too much, or the deleveraging process will falter.
China set the tone of its 2017 monetary policy as prudent and neutral, keeping appropriate liquidity levels but avoiding excessive liquidity injections.
