THE central bank splashed more cash into the banking system last week than at any time in the past four months, but fresh signs of economic weakness and a trade war may raise the chance it will deploy bolder stimulus.

The People’s Bank of China injected a net 430 billion yuan (US$62.3 billion) last week via reverse bond repurchase agreements, the biggest weekly fund dump since mid-January ahead of the Chinese New Year holiday, a time when the central bank traditionally boosts liquidity to meet higher cash demand.

Market participants interpreted the liquidity boost as an attempt to calm investors after the government seized control of a troubled regional bank, which increased interbank financing costs.

But rising economic pressures from a protracted trade war along with a likely huge liquidity shortfall due to maturing loans in coming months require more long-term funds.

The central bank has so far only used targeted easing measures to shore up the economy with policymakers unwilling to see funds flow into unwanted sectors and create bubbles.

Maturing reverse repos and medium-term lending facility (MLF) loans are set to drain 993 billion yuan from interbank money markets this week, media calculations based on official data showed.

Ming Ming, head of fixed income research at CITIC Securities in Beijing, said the central bank could “carry out a reserve requirement ratio (RRR) cut to offset maturity” next week, or it could roll over MLFs while injecting more cash via reverse repos.

He added that RRR cuts were “more efficient” than simply rolling over MLF loans, and would help stabilize general liquidity in June.

Others were less convinced about the possibility of another RRR cut. (SD-Agencies)