China's interbank rate drops after cash injection

BEIJING -- China's interbank money rate fell to a one-week low on Thursday after the central bank pumped funds into the financial system by selling 14-day reverse repurchase (repo) contracts for the first time in three weeks.

The People's Bank of China added 33 billion yuan ($5.37 billion) in funds into the banking system through the reverse repo agreements, a process in which central banks purchase securities from banks with an agreement to resell them at future dates.

The injection, following Tuesday's 35-billion-yuan seven-day reverse repo operation, has resulted in a net 59 billion yuan being pumped into the market this week, offset by 9 billion yuan in maturing reverse repos, which draw liquidity.

Thursday's 14-day reverse repo was priced to yield 4.3 percent, according to a PBOC statement.

In Thursday's interbank market, the overnight Shanghai Interbank Offered Rate (Shibor), which measures the cost at which Chinese banks lend to one another, dropped by 16.8 basis points to 3.89 percent, falling for three consecutive days.

The rate surged to a record high of over 13 percent in late June when a cash crunch hit the country's banking system and disturbed the financial markets.