Chinese banks' borrowing costs dropped, extending Wednesday's biggest decline in two weeks, as the central bank conducted reverse-repurchase operations to meet a month-end increase in demand for cash.

The People's Bank of China sold 50 billion yuan ($7.8 billion) of seven-day reverse-repo agreements at a yield of 3.35 percent on Thursday, according to a trader at a primary dealer required to bid at the auctions. The monetary authority sold 95 billion yuan of the contracts on July 24, when 50 billion yuan of three-month treasury deposits were also auctioned to commercial banks.

"There was enough cash coming into the system this week," said Kumar Rachapudi, an interest-rate strategist at Barclays Plc in Singapore. "We should see one or two more reserve- requirement cuts this year. We were expecting one in July, but think the PBOC right now prefers to fine-tune liquidity" using reverse repos.

China Daily - Agencies