Red lanterns are hung high to celebrate the Lantern Festival on Feb. 17, 2016 in Suzhou, Jiangsu Province of China. (Photo : Getty Images)
The People's Bank of China (PBOC) has recently pumped in a record amount of cash ahead of the Spring Festival. This is in anticipation of the cash crunch that it will see over the holiday until the end of the month.
Chinese New Year is just around the corner, and China's central bank has prepared by injecting 1.13 trillion yuan ($165 billion) into domestic money markets last week. The figure was a record high for the week and the highest since it pumped 940 billion yuan ($137.15 billion) in mid-September.
As a tradition, Chinese families take huge amounts of cash out of banks prior to the festivities. The money ends up in little red envelopes called "ang bao" which are given as gifts. Other expenses include alcohol, food, travel and other spending over the holidays.
But the problem is worse this year as the Chinese New Year comes during the end of the month, when companies also have to pay for employee's salaries and taxes.
Aside from pumping in cash into the domestic markets, the PBOC has allowed the biggest state banks to temporarily cut the amount of cash to be held as reserve.
The reserve requirement ratio (RRR) has been lowered by 1 percent to 16 percent for the 'big five' state banks which include IBC, Bank of China, and China Construction Bank.
Reports say that authorities will restore the normal level at an appropriate time after the holiday.
"An RRR cut would be permanent and irreversible until the moment you raise the level back up again. This time they are saying: we know you need the money for the Lunar New Year, but after that we'll take it back," said Suan Teck Kin, an economist at United Overseas Bank Group.
By applying such measures, this softens the impact of the seasonal cash crunch which will start in just a few days.
