China's Cash Squeeze Persists Despite PBOC Liquidity Boosts

Despite the People's Bank of China (PBOC) injecting a near record-high amount of liquidity into the banking system, China's cash squeeze continues to persist. The PBOC's efforts to address the cash squeeze, particularly ahead of the Lunar New Year, have been effective in lowering interbank borrowing rates and supporting the yuan's value. However, underlying factors, such as seasonal demand, tax payments, maturing MLF loans, and external pressures, contribute to the persistent cash squeeze.



The PBOC's evolving strategy, shifting from traditional tools like MLF loans to short-term instruments such as reverse repurchase agreements, can help alleviate the cash squeeze by providing greater flexibility, reducing long-term dependence on MLF, enhancing market stability, and balancing policy moves. However, additional easing measures may be required to address the cash squeeze effectively.

In conclusion, while the PBOC's liquidity injections have been effective in addressing China's cash squeeze, the underlying factors contributing to the persistent cash squeeze require further policy action. The PBOC's evolving strategy, shifting from traditional tools to short-term instruments, can help alleviate the cash squeeze, but additional easing measures may be necessary to address the cash squeeze effectively.