Liquidity improved in China's interbank market Thursday, the first trading day of the year, despite the central bank not injecting funds.

The seven-day repurchase rate, a gauge of funding costs among banks, fell 42 basis points, or 0.42 percentage point, from Tuesday, the last day of 2013, to 4.98 percent yesterday, according to the National Interbank Funding Center.

The drop eased a liquidity [HK Corporate Registration]stress that drove the interbank borrowing rate to nearly 10 percent at the year end.

The funding availability improved despite the People's Bank of China withdrawing a net 29 billion yuan (US$4.8 billion) via open market operations this week, the first withdrawal in three weeks.

The PBOC also withdrew money from the market via repurchase agreements with two banks on Monday and Tuesday, Caixin.com reported, citing unidentified sources.

CITIC Securities Co said in a report that the interbank borrowing rate may still be relatively high in January ahead of the Chinese New Year as banks prepare funds for cash withdrawals due to the holidays.

The brokerage expects liquidity in the money market to be neutral this year.