CHINA'S central bank injected additional liquidity into the financial system for the first time since June as a growing mortgage-payment boycott and a virus flareup leads to a sense of crisis.

The People's Bank of China (PBOC) boosted the size of its daily short-term cash operation to 12 billion yuan (S$2.5 billion) from 3 billion yuan, resulting in a modest net injection of 9 billion yuan, the first overall infusion since Jun 30. The 7-day interbank lending rate has risen over the past week but remains below the central bank's benchmark rate.

The authorities are adding liquidity despite money-market rates being near the lowest in more than a year as they seek to counter a housing-market downturn and a Covid Zero policy that's weighing on economic growth. Regulators have called emergency meetings with banks amid reports that home buyers are refusing to pay mortgages with developers stalling on construction.

"The injection is getting more accommodative due to the rising risks of contagion," said Peiqian Liu, a China economist at Natwest Markets in Singapore. "The situation remains contained for now, but the risks are still high if Covid restrictions delay construction even when funding is sufficient."

In another sign Chinese policy makers are seeking to ease a liquidity crunch facing real-estate companies, a newspaper reported on on Sunday that the banking regulator has urged lenders to support developers. State media have cited analysts warning that the stability of the financial system may be hurt if the mortgage payment boycott spreads with reports saying 100 projects have been affected.

The PBOC's decision to inject more funds was also flagged by some analysts due to the seasonal demand for cash from corporates in the middle of the month to cover their tax payments.

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Earlier this month, the PBOC rolled over its maturing policy loans and started withdrawing cash from the banking system in a sign that it's moving away from its crisis-era policy easing. Further interest-rate cuts are unlikely as liquidity in the interbank market is more than "reasonably ample", a senior PBOC official signalled last week.

With the repurchase rate still trending below the benchmark lending rate of 2.1 per cent, there is only a "marginal benefit of pumping extra liquidity into the interbank market", said Ken Cheung, a strategist at Mizuho Bank in Hong Kong. BLOOMBERG