China faces $708 billion cash demand on early Lunar New Year – Bloomberg

Demand for liquidity may total about 4.5 trillion yuan ($708 billion) in January, 18% more than the amount seen last year, according to calculations by Bloomberg based on official data and analysts’ estimates. 

An increase in the amount of policy loans coming due and demand for cash to be spent during the Lunar New Year, which takes place earlier in 2022, are drivers.

A recent reduction in the reserve requirement ratio for banks could provide relief but some market watchers predict the central bank could ease again to avoid a liquidity crunch. That comes after policymakers indicated a shift from deleveraging the economy to supporting growth.

Further policy easing will be a double-edged sword for the People’s Bank of China. While such a move could soothe concerns about higher funding costs and prevent a liquidity squeeze, it may also fuel asset bubbles that Beijing wants to avoid.

Ahead of the Lunar New Year in 2019 and 2020, the authorities lowered the reserve ratio to pump in cash. However, they avoided supplying extra funds last year, stoking fears about a tighter policy stance and sending short-term funding costs soaring.