China's central bank announced Thursday that it had injected liquidity into the market, with the country's interbank short-term lending rate having soared in recent days as commercial banks sought funds to meet year-end requirements.

The People's Bank of China (PBC), the central bank, said that via its Short-term Liquidity Operations (SLO) it had injected fresh funds into the interbank lending market, but it did not specify how much.

"The market is historically impacted by factors including the country's fiscal income and spending at year-end," the PBC said in a statement released Thursday afternoon.

"If necessary, [the PBC] will continue injecting liquidity into financial institutions that have met certain requirements," it said.

The announcement was made after the benchmark seven-day bond repurchase (repo) rate rose to nearly 10 percent in intraday trade on Thursday, its highest level since the cash squeeze in late June.

The seven-day repo rate stood at 7.1 percent when trading closed Thursday, the highest point in three months, and the one-day repo rate reached 7 percent Thursday, gaining by 318 basis points.

Jin Lin, a senior banking analyst with Orient Securities in Shanghai, told the Global Times Thursday that while there is a shortage of liquidity, it will not lead to a dangerous credit crunch any time soon.

"After the cash crunch in June, banks should have some cash reserves and will not experience any serious liquidity problems soon," Lin said.

All terms of the Shanghai interbank offered rate (Shibor), which measures the costs for banks to borrow from each other, have posted alarming spikes since Monday, with the Shibor for seven-day yuan loans seeing the largest increase - it rose from 4.35 percent on Monday to 6.47 percent on Thursday.

The Shibor for one-month yuan loans rose by 33.62 basis points to 7.1 percent on Thursday, according to the National Interbank Funding Center, and the Shibor for two-week loans jumped by 113.9 basis points to 6.22 percent Thursday.

Li Bo, Shanghai-based chief investment consultant at GF Securities, told the Global Times Thursday that it is normal for commercial banks to increase their borrowing at year-end since they need to meet reserve requirements set by the regulator, and that raises the Shibor level.

Zhang Lei, a macroeconomics analyst with Minsheng Securities, told the Global Times Thursday that another reason why commercial banks are short of funds is that an unusually high number of financial instruments are maturing late this year.

SLOs are usually conducted behind closed doors with banks that are in need of liquidity. The PBC did not mention which banks received the fresh cash injection or when.

The PBC did not conduct any open market operations during the last five sessions, intending to let maturing financial instruments absorb the cash injected into the market by the Ministry of Finance's fiscal deposits, according to a report by Reuters Thursday.

The US Federal Reserve announced Wednesday that it will cut its quantitative easing program by $10 billion to $75 billion each month, which could cause a rise in the US dollar. This might cause funds to flow from China to the US, which would lead to a surge in the Shibor and deposit interest rates in the future, Li said.

However, both Zhang and Li said the Shibor level will go down soon.

"The interbank lending rate will decline soon since the Ministry of Finance will inject fiscal deposits into the system within the next few days," Li said.

Global Times