As part of the central bank's open-market operations, the bill issued by the central bank to commercial banks at a certain interest rate as a government debt obligation, is often used to offset money supply increases in circulation brought about by foreign exchange inflows, including trade surplus, foreign direct investment and international hot money.

According to the central bank's statistics, it issued bills totaling 4.07 trillion yuan ($580 billion) in 2007 when the country was caught in a pitched battle with inflation, which had convulsed the overheating economy.

In a bid to soak up excessive liquidity in the credit markets, the central bank raised the reserve requirement ratio five times in the first half of 2008, with the ratio reaching a high of 17.5 percent. In 2007, the ratio was raised as many as 10 times. Meanwhile, the central bank also raised interest rates six times last year.

But as the U.S. credit crunch unfolds, China's preoccupation with inflation has changed to worry about an economic slowdown almost overnight. The country's export machine has shown signs of tapering off. China Customs data indicate that the country's export value from January to September climbed by 22.3 percent year on year, 4.8 percentage points lower than the same period a year earlier. On the financial front, the country's M2 (broad money supply) rose by 15.29 percent year on year at the end of September, missing the prescribed target of 16 percent, according to the central bank's latest data. More alarmingly, commercial banks, reluctant to part with cash in hard times, are lending less readily, choking other sectors that rely on loans for their expansion.

The reduced frequency of the sale of central bank bills will add liquidity to the credit markets. It also has already prompted expectations of further interest rate cuts. "The interest rate is set to head lower as there is more money in the markets," Guo said.

It is also widely believed in the markets that another interest rate cut is just a matter of time given the downside risks that are deepening. Guo said commercial banks are less motivated to lend because of concerns over possible risks in a slackening economy. As a result, further interest rate cuts would add incentives for banks to lend, he said. Besides this, government plans for further fiscal stimulus such as tax breaks would breathe steam into industries and the consumer market, he said.

Feng estimated that the central bank could cut interest rates again around January 1 as well as lower the reserve requirement ratio at the same time.

"Domestic inflation is expected to dip to 3.5 percent in the last quarter this year, clearing the path for the country's stimulation efforts," he said.

Meanwhile, Feng doesn't think that the central bank eventually might phase out its one-year bills to foster market liquidity.

"The central bank is unlikely to ditch the bills, because the country still needs to absorb the liquidity caused by the foreign exchange inflows, unless all foreign capital pulls out of China," he said.