Cash Crunch Eases but Worries Linger

China's short-term interbank interest rates have fallen back down to normal levels this week. However, analysts are cautioning that demand for cash could soar again ahead of the Lunar New Year holiday. A two-week scramble for funds has eased this week after the central authorities released cash for government expenses. At the same time, banks have now finished their end-of-year fundraising that also sucks liquidity out of the money markets. The interbank lending rate dropped to 4.9-percent yesterday, down from nearly 9 percent a week ago. However, fresh demand for cash islikely to resurface as banks will soon need to raise funds again to meet their end-of-month requirements for January. On top of this, companies and individuals are also going to begin putting a drain on the cash supplies, asthe Lunar New Year holiday is set to begin on January 31st. The central bank has tightened its monetary policies in recent months, slowing the speed of the overall credit supply. The idea is to reduce the economy's unhealthy dependence on easy money and rein in banks' risky lending behavior.