CHINA’S central bank sought to allay fears of a cash crunch Friday, saying it has added US$50 billion in three days to the interbank market, where rates have shot to highs last seen in June when the market seized up.

    Rapid credit growth in the world’s second-biggest economy in the last four years has worried China’s authorities, who fear rising debt levels are fuelling asset bubbles.

    The People’s Bank of China said it injected more than 300 billion yuan (US$50 billion) into China’s interbank market in response to rising rates. But it hinted that banks, too, have work to do if they want to avoid a cash crunch.

    The central bank told banks to change their asset and liability structures, an order analysts say is aimed at getting banks to correct a basic mismatch in maturities, where they increasingly rely on short-term funds to make longer-term loans.

    Authorities also worry that more and more loans are going to speculators through China’s fast-growing shadow banks, not borrowers with real business needs.

    Despite the central bank’s disclosure of its latest intervention Friday, which experts welcomed as a sign that it is on top of the situation, Nie Wen, an analyst at Hwabao Trust, said the government seems to want interbank rates to stay elevated to prod banks into cutting risky loans.

    The central bank did not comment directly on liquidity conditions, but signalled that the market has adequate liquidity by noting the level of excess reserves is “relatively high” by historical standards.

    “The central bank has over three consecutive days, through the use of short-term liquidity operations, collectively injected over 300 billion yuan into the market,” the central bank said Friday evening. “At the same time, we remind major commercial banks to reasonably adjust their asset and liability structures.”

    The interest-rate swap based on the benchmark seven day repo, considered the best indicator of liquidity conditions, Friday hovered near the record high of 4.99 percent struck the previous day.

    The seven-day repo average rate also rose to close above 8 percent, the highest level since June 21 and within range of the all-time high of 11.6217 percent hit June 20.

    The benchmark seven-day bond repurchase contract began rising Wednesday, and the rise accelerated when the central bank refrained from injecting cash into the system during regularly scheduled open market operations Thursday, the fifth straight session it stayed on the sidelines.

    The stresses in the interbank market highlight the difficulty regulators are having in gradually raising the cost of short-term credit to rein in speculative forms of finance without setting off destabilizing spikes in adjacent markets.

    Some say further shocks are likely in the future unless the central bank tweaks its current strategy for attacking the way China borrows, lends and prices capital.

    Regulators were startled earlier in 2013 when the “shadow banking” sector began to post explosive growth, driven in particular by high-yielding wealth-management products and more obscure instruments like discounted bankers acceptance notes.

    Economists said this growth was largely being used for speculative purposes — or alternatively to roll over bad local government debt — and regulators quickly cracked down, both through administrative measures and by increasing the cost of short-term money in the interbank market. (SD-Agencies)