China's central bank Tuesday continued to pump cash into the financial system to ensure stable liquidity.
The People's Bank of China (PBOC) effectively injected 40 billion yuan (about 6 billion U.S. dollars) into the money market as maturing securities were outvalued by new reverse repos.
A reverse repo is a process by which the PBOC purchases securities from commercial lenders with an agreement to sell them back in the future.
On Tuesday, 80 billion yuan of seven-day reverse repos were injected priced to yield 2.45 percent, with 70 billion yuan of 28-day contracts to yield 2.75 percent. Meanwhile, earlier agreements worth 110 billion yuan matured.
Lending costs between banks have been rising since the beginning of the month, with the overnight Shanghai Interbank Offered Rate up to 2.73 percent Tuesday.
The central bank has increasingly relied on open market operations for liquidity management, rather than cuts in interest rates or reserve requirement ratios.
China set the tone of its monetary policy in 2017 as prudent and neutral, keeping appropriate liquidity levels but avoiding excessive liquidity injections.
