China central bank sees liquidity crunch ease

BEIJING -- China's central bank on Tuesday stressed that the country is not short of liquidity and the current cash crunch in the interbank market will gradually ease.

In a second statement released within two days, the People's Bank of China said it has boosted liquidity support to some cautious financial institutions after the country's short-term interbank rates rocketed to unusually high levels during the past two weeks.

The Shanghai Interbank Offered Rate (SHIBOR) overnight rate, a basic gauge of interbank borrowing costs, surged to an all-time high of 13.44 percent last Thursday.

The central bank attributed the phenomena to a confluence of factors, including fast credit growth, the concentrated collection of business income taxes, surging cash demand during the Dragon Boat Festival holiday, changes in the foreign exchange market and banks' setting aside money to meet reserve requirements.

With seasonal factors and market panic waning, the current cash crunch will gradually ease, the central bank forecast.

It said it will continue to carry out a prudent monetary policy while actively using a combination of innovative tools, such as open market operations, short-term liquidity operations and standing lending facilities, to adjust liquidity to stave off abnormal fluctuations in the market.

The latest comment came as a swift follow-up to Monday's statement, in which the central bank asked the country's overstretched lenders to manage liquidity risks, signalling no intention to help ease the current squeeze.

China's key stock index sank 5.3 percent on Monday and recorded the biggest daily loss in nearly four years over liquidity concerns.