CHINA'S interbank borrowing rate dropped to its usual level yesterday because the central bank didn't drain money from financial institutions for the second week, following the decade's worst liquidity squeeze.

The People's Bank of China did not release a statement for bill sales yesterday, indicating it has not drained liquidity for two consecutive weeks after short-term borrowing costs surged to a 10-year high of nearly 30 percent on June 20, which sent a blunt but effective message to overstretched banks that the PBOC was determined to control risky lending.

This week is set to see 46 billion yuan added to the financial system through matured bills and repurchase contracts.

The benchmark weighted-average seven-day bond repurchase rate shed 0.51 percentage point to 4.25 percent, the lowest since May 30 and more than halved from the peak on June 20. The current rate is near the usual 3-4 percent range.

The overnight repo rate dropped 0.31 percentage point to 3.40 percent, while the 14-day rate shed 0.43 percentage point 4.65 percent.

"The borrowing rate fell sharply as market demand for capital ebbed after the quarter-end and the central bank announced clearer measures to support liquidity," said Tang Yawen, an analyst at Northeast Securities Co.

A new Financial Condition Index compiled by the PBOC showed that liquidity was still "moderate" although it was worse in the second quarter than the first quarter, the Financial News reported yesterday, without quoting specific number.

The newspaper said the central bank is considering to release a realtime Financial Condition Index.