The People's Bank of China (PBOC), the central bank, pumped 120 billion yuan (18 billion U.S. dollars) into the money market via open market operations on Tuesday.
It is the largest single-day cash injection in the form of reverse repurchase agreement (repo) since Jan. 2014, with the PBOC looking to reassure the market amid tightening liquidity.
The yield for the seven-day reverse repo stood at 2.5 percent, according to a statement of the central bank.
The operation will offset a 50 billion yuan of reverse repo due on Tuesday and another 40 billion yuan that will mature on Thursday.
Liquidity in the money market has tightened recently due to dropping new yuan funds outstanding for foreign exchange and a depreciating Chinese yuan.
The overnight Shanghai Interbank Offered Rate (Shibor), a key barometer for interbank lending in China, climbed to 1.75 percent on Tuesday, up markedly from around 1.4 percent at the end of July.
Li Qilin, an analyst with Minsheng Securities, said the move suggested the central bank has noticed the tightening liquidity and began to take action to stabilize market sentiment.
Given the limited impacts from reverse repos, Li said more powerful easing measures could be expected to unleash long-term liquidity, such as a cut in bank's deposit reserve ratios in the third quarter.
