BORROWING costs between banks rose for a fifth straight day yesterday on worries that liquidity will tighten amid shrinking cash supply from the central bank.

There will be no cash injection from maturing central bank bills this week, compared with 85 billion yuan (US$14 billion) maturing next week, market data showed.

The People's Bank of China continues to survey the market demand for bills but has refrained from either injecting or taking cash from financial institutions, traders said.

The seven-day Shanghai Interbank Offered Rate, an indicator of liquidity strain among banks, was up to 3.959 percent yesterday, the highest since June 3. The overnight rate edged up to 3.1355 percent from 3.1035 percent.

"Liquidity is likely to remain tight with no cash maturing this week," said Deng Haiqing, a researcher with Hongyuan Securities.

Analysts also raised the possibility that some banks will need to repay the temporary liquidity assistance that the PBOC provided in late June.

Worries over tightening liquidity in the second half mounted after central bank data showed foreign exchange purchases by financial institutions fell 41.2 billion yuan in June, the first drop in seven months.

Economists said a cut in reserve requirement for banks will be necessary to stabilize liquidity.

China's interbank market is in focus this month after the PBOC effectively engineered the decade's worst credit crunch at the end of last month by refusing to inject enough cash to allow banks get their books in order for the end of the second quarter.