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A stark indicator of these liquidity challenges is the rapid rise in both secured and unsecured money market rates in the past week. For instance, the seven-day repo rate—which reflects borrowing costs among banks—leapt from around 1.9% in December to 3.3% recently, despite substantial liquidity injections from the central bank.
Seasonal Factors Compound The Crisis
Amidst this liquidity crunch, seasonal factors are further complicating the issue. As the upcoming Lunar New Year holiday approaches, there is typically a seasonal bottleneck in cash circulation as businesses and individuals prepare for a week where banks remain closed. This year, however, the usual seasonal patterns have been exacerbated by broader economic realities.