In a normal year, China pumps extra liquidity into the financial system ahead of Lunar New Year, when people spend more cash than usual. In a break from this convention, the central bank last month temporarily turned the monetary taps off.
Economists estimated a total of 328bn yuan ($66.7 billion) was drained from the market at a time when people usually spend the most.
As a result of this, China’s benchmark market rates hit a five-year high last week. This triggered suggestions the People’s Bank of China (PBoC) was getting more aggressive about tightening to head off signs of overheating in some areas of the economy. However, it then reversed course this week by cutting rates sharply.
“It could have prevented the latest jump by…