Chinese Banks Face Cash Squeeze as Yuan Defense Adds Pressure
- The PBOC’s increasing focus on yuan has worsened cash crunch
- The central bank has held back rate cuts since September blitz
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China’s increasing determination to defend its currency against a strong dollar has worsened a liquidity squeeze in the country, pushing a key short-term funding rate to its highest level in more than a year.
The cost of borrowing cash via seven-day interbank pledged repurchase contracts — a popular funding tool used by financial institutions — spiked this week to its highest level since October 2023. The spread between the rate and the central bank’s own reverse repo reference rate is now at its widest point since early 2021.