CHINA yesterday halted withdrawing money from financial institutions for the first time in three months to ease the overnight interbank borrowing rates.

The People's Bank of China did not offer repurchase contracts or bills yesterday, data from the interbank bond market showed. It is the first time since February that the central bank stopped draining liquidity through the repo contracts.

The daily fixing of overnight borrowing rate among banks was 6.6910 percent yesterday, down from an all-time high of 9.5810 percent on June 8, according to data from National Interbank Funding Center in Shanghai.

The interbank market was closed from Monday to Wednesday due to the Dragon Boat Festival holiday.

The PBOC is set to inject 92 billion yuan (US$15 billion) into the market from the maturing of previously-issued bills and repo contracts, smaller than the net 160 billion yuan injected last week.

Analysts said the PBOC's unwillingness to add liquidity reflected that monetary policy was still tight, and the liquidity squeeze may prevail this month.

An outflow of capital from China and strong demand for cash during the holiday have created the recent liquidity squeeze, Guotai Jun'an Securities said.