(Yicai) July 17 -- The People’s Bank of China has carried out more than CNY1 trillion (USD137.5 billion) in seven-day reverse repos since July 15. The massive cash injections are aimed at making more use of this monetary instrument to provide liquidity and stabilize short-term interest rates, market participants said.

Yesterday, the central bank conducted its largest single day operations since Jan. 17, injecting CNY676 billion (USD93 billion) into the open market through seven-day reverse repo operations.

This was the day after it infused CNY129 billion into the market and today it injected another CNY270 billion, bringing the total over the past three days to CNY1.07 trillion. The net injection into the market amounts to CNY966 billion (USD132.9 billion).

A lot of taxes have to be paid in July, so funds might be tight in the short term, Dong Ximiao, chief researcher at Merchants Union Consumer Finance Company, told Yicai. The central bank can inject short-term liquidity into the market through reverse repo operations, which helps to offset the impact of tax payments on liquidity and promotes the stable operations of the financial markets.

PBOC Governor Pan Gongsheng proposed for the first time on June 19 that the central bank should use the interest rates on short-term operations as its main policy rate, indicating that China's monetary policy regulation is about to undergo a significant transformation.

The central bank recently emphasized the need to stabilize short-term interest rates by narrowing the interest rate corridor, said Wang Qing, chief macro analyst of Golden Credit Rating International. This will provide the market with clearer signals regarding interest rate targets. So that regardless of the reasons behind any volatility in rates, the PBOC will respond by expanding the scale of open market operations and strengthening guidance. This will enable the central bank to more effectively control rate fluctuations.

The PBOC also said on July 8 that it would introduce overnight temporary repo or reverse repo operations between 4 p.m. and 4.30 p.m. on working days to meet the liquidity needs of commercial banks when cash flow becomes tight due to concentrated payments.

If there are significant fluctuations in the funding market, the central bank may conduct temporary reverse repo or repo operations to adjust market liquidity in a more timely, accurate and swift manner, Dong said. For example, between 4.00 p.m. and 4.30 p.m., temporary reverse repo operations will be able to meet the liquidity needs of commercial banks, ensuring smooth payments and adequate liquidity.

Editor: Kim Taylor