PBOC injects record single-day liquidity

China's central bank conducted reverse repos Tuesday, which is the largest single-day money injection on record, in a move to boost liquidity.

The People's Bank of China offered 190 billion yuan ($30 billion) for 24-day reverse repo and 100 billion yuan for 14-day reverse repo, according to its website.

"The central bank's decision to ease money strain was prompted by the recent hike of interbank rates, which showed the tightening of short-term liquidity," Wang Jun, deputy director of the Consulting Research Department at China Center for International Economic Exchanges, a government think tank, told the Global Times Tuesday.

The benchmark two-week Shanghai Interbank Offered Rate (Shibor) stood at 4.8208 percent Tuesday, rising from 3.0938 percent on September 4.

The overnight and one-week Shibors were 4.5000 percent and 4.7408 percent Tuesday, reaching a seven-month high.

"The reverse repo offering this time shows the central bank will continue to use this measure to release liquidity into the money market, instead of cutting reserve requirement ratio (RRR) for financial institutions," Wang said.

After the US started the third round of quantitative easing or "QE3" to inject money into the economy, people began to worry about imported inflation in China.

"The Chinese authorities didn't use the tool of cutting RRR partly due to inflation concerns," Wang noted.

The country's CPI rose 2 percent year-on-year in August, up from a 1.8 percent increase in July. And food prices saw a 3.4 percent rise in August year-on-year, faster than a 2.4 percent rise in July.

"Compared with reverse repo operations, an RRR cut could lead to market expectations of further monetary policy loosening, which the government would not like to see," said Guo Tianyong, director of the Research Center of China Banking at the Central University of Finance and Economics.

"The government would like to 'fine-tune' economic policies to stabilize the economy, rather than see a dramatic fluctuation," Guo told the Global Times Tuesday.

The central bank will continue to implement a prudent monetary policy, and will fine-tune policies based on economic conditions at home and abroad, according to a statement published on its website Tuesday.

Bank of China predicted in a report Monday that the central bank will continue to conduct reverse repos.