BEIJING - China's tight liquidity lasted over a quarter, but has improved as the 7-day interbank repurchase (repo) rate has retreated, said HSBC Global Research on Monday.

The repo rate has returned to around 3 percent, the level of September, thanks to the People's Bank of China, the central bank, working to lower funding costs. The 7-day repo rate opened at 2.85 percent on Monday, down from 2.9 percent of the previous trading day.

Despite cuts to the reserve requirement ratio (RRR) and deposit rates, funding costs remained high due to 48 initial public offerings (IPOs), the Spring Festival holiday and a stock market rally.

In response, the PBOC reduced its 7-day reverse repo rate from 3.85 percent to 3.55 percent in March and lowered it by another 10 basis points on April 7.

The rate is unlikely to remain below 3 percent towards the end of April due to IPO subscriptions and tax bills on the way, HSBC said.

Thirty IPOs are due from April 13 to 16 in the A-share market and are expected to lock up nearly 3 trillion yuan ($490 billion), the largest batch ever.

"Second, tax payments will start immediately after the subscriptions. Unlike IPOs, tax payments are permanent liquidity withdrawal rather than a temporary phenomenon," the note said.

HSBC expects the PBOC to further lower the 7-day reverse repo rate to control money market rates and, given the potential fund shortage caused by tax payments, another RRR cut is possible in late April or May.