China's central bank on Thursday skipped the open market operations of reverse repos, draining liquidity from the market.
This was the fifth consecutive business day that the People's Bank of China (PBOC) has halted the open market operations of reverse repos, a process where it purchases securities from banks with an agreement to sell them back in the future.
This meant that there was no injection of short-term funds into the banking system, which led to a net cash withdrawal, as previous reverse repos matured Thursday and siphoned 40 billion yuan (5.8 billion U.S. dollars) from the market.
The 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.
Fiscal expenditures mean fiscal deposits flow into commercial banks from the central bank, thus, improving market liquidity.
China will pursue a "prudent and neutral" monetary policy in 2017, with the broad money supply (M2), a key measure for liquidity on the market, projected to grow by around 12 percent. This is one percentage point lower than the 2016 target, according to the government work report, which was delivered at the annual parliamentary session earlier this month.
A recent PBOC survey showed that about 20.3 percent of bankers polled called China's monetary policy "relatively tight," up from only 5.7 percent in the fourth quarter of last year.
