While a reduction in deposit rates helps redirect savings into investment and spending to curb downside to the economy, any cash crunch at banks caused by this dynamic could spark volatility in the money market. It would also put policymakers on alert to smooth out funding conditions, especially as June marks the end of the quarter.
Chinese banks are set for a liquidity test in June as they face record debt maturities and a potential exodus from deposits.
The lenders are on the hook to repay a record 4.2 trillion yuan ($751 billion) of negotiable certificates of deposit, which are short-term debt instruments, next month. That comes at a time when regular savings deposits are shrinking as interest rate cuts prompt investors to turn to products with higher returns, with some analysts projecting the withdrawals to reach trillions of yuan.
