Chinas central bank continued to inject funds into the financial system through open market operations on Wednesday to offset liquidity pressure. The Peoples Bank of China pumped 130 billion yuan (about 20.3 billion U.S. dollars) into the market through reverse repos, with 60 billion yuan of contracts maturing, leading to a net injection of 70 billion yuan. This followed a net injection of 30 billion yuan on Tuesday.
A reverse repo is a process by which the central bank bids and buys securities from commercial banks, with an agreement to sell them back in the future. Analysts believe the moves were made to stabilize market expectations as banks liquidity demand could increase due to taxes and required reserves as well as more maturing securities.
On Wednesday, the bank conducted 60 billion yuan of seven-day reverse repos at an interest rate of 2.55 percent, 40 billion yuan of 14-day reverse repos at 2.7 percent, and 30 billion yuan of 28-day reverse repos at 2.85 percent. All rates were unchanged from previous operations. China has decided to maintain a prudent and neutral monetary policy in 2018 as it strives to balance growth and risk prevention.