Chinese money market rates extended their moderation into a fifth day on Thursday after the central bank did not drain any cash from the market, and stocks recovered some of their big losses from earlier in the week as investor sentiment steadied.
Money market rates remain elevated and liquidity is tighter than normal, but the panic of a possible credit crunch that gripped the market last week has subsided, traders say.
(Read More: China Is Right to Tame Credit Growth: Moody's)
The People's Bank of China's (PBOC) wants to curtail the diversion of funds to a vast non-bank lending market as it seeks to shore up growth in the world's second-largest economy.
Its decision not to inject or withdraw funds at its regular open market operations on Thursday signaled that while it was not looking to tighten conditions further for now, it was also holding the line on a campaign to rein in informal lending.
"The market is no longer panicked, even though the PBOC refrained from injecting money via reverse repos in today's open market operations, as the central bank has pledged to support those banks which operate in line with official lines," said an Asian bank trader in Shanghai.
(Read More: Is Meltdown in China Stocks About to Get Worse?)