China’s central bank looks set to risk another cash crunch at the end of January, barely a month after the last market squeeze, as policymakers press ahead with a crackdown on shadow financing and other risky bank lending.
The People’s Bank of China (PBOC) is attempting a delicate balancing act to keep economic growth on track while avoiding a debt-induced financial crisis.
Periodic cash squeezes as banks scramble for fresh funds highlight the policy dilemma the PBOC faces in 2014, as it pushes financial reforms to help rebalance the world’s second biggest economy away from the investment- and exports-led model that powered its rapid rise.
Spikes in June and December in the interest rates at which banks lend to each other signaled the central bank’s determination to reduce alarming levels of debt. But it must try to do so without hurting growth by braking too hard on credit.