China’s cash squeeze has worsened despite the central bank’s repeated attempts to calm financial markets with emergency money injections. Its failure so far to alleviate the pressures will throw an unusually bright spotlight on its open-market operations today, a regularly scheduled event at which the central bank will have the opportunity to pump yet more cash into the system.

Optimism that the People’s Bank of China will offer a helping hand fuelled a small rebound in the Chinese stock market on Monday, even as interbank lending rates climbed to their highest in half a year.

The continued tightening of monetary conditions in the face of the central bank’s liquidity injections has raised the spectre of a repeat of the cash crunch earlier this year that exposed fragility in the Chinese economy and alarmed global investors.Nevertheless, some analysts believe the People’s Bank of China will refrain from riding to the rescue of jittery financial markets.

“The PBoC has been very firm in guiding financial institutions to lower their leverage and reduce debts, so it won’t lightly shift away from their relatively tough policy stance,” said Zhou Wenyuan, head of fixed-income research at Guotai Junan Securities, a top domestic brokerage.

Debt in China has risen from 130 per cent of gross domestic product five years ago to about 200 per cent today, a steep increase that the government is now seeking to halt.

Mr Zhou predicted that the central bank would continue to direct money at cash-strapped lenders via “short-term liquidity operations” – as it did on three consecutive days last week – to prevent any institution from falling into trouble. However he said it would stop short of injecting cash via open-market operations, which would be a stronger signal of loosening.

Such restraint would be risky, potentially fuelling another rise in China’s money market rates, which are already at unsustainable high levels.