China's central bank on Tuesday stressed that the country is not short on liquidity and the current cash crunch in the interbank market will gradually ease.

In the second statement released within two days, the People's Bank of China said it has boosted liquidity support for some cautious financial institutions after the country's short-term interbank rates rocketed to unusually high levels during the past two weeks.

The Shanghai Interbank Offered Rate (SHIBOR) overnight rate, a basic gauge of interbank borrowing costs, hit a record-high of over 13 percent on Thursday.

The central bank attributed the phenomena to a confluence of factors, including fast credit growth, the concentrated collection of business income taxes, surging cash demand during the Dragon Boat Festival holiday, changes in the foreign exchange market and banks' setting aside money to meet reserve requirements.

With seasonal factors and market panic waning, the current cash crunch will gradually ease, the central bank forecast.

In recent weeks, the PBOC has been taking a tough line with Chinese lenders. It has refused to inject cash into the financial system in an attempt, as analysts said, to force lenders to stop channelling money into the informal banking sector, known as "shadow banking," which has boomed in recent years and fueled concerns about financial risks.

Although the short-term interbank rates have come down this week, stocks tumbled over concerns that the credit crunch would force the world's second-largest economy to slow further.

The SHIBOR continued to ease from Thursday's record high and fell to 5.74 percent on Tuesday.

Chinese stock indices rode a roller coaster on Tuesday marked by a quick, deep dive to touch a four-and-a-half-year low, from which they rebounded, with the key Shanghai index down 0.19 percent for the day. The key index sank 5.3 percent on Monday, the biggest daily loss in nearly four years, amid persistent liquidity concerns.

The PBOC urged commercial banks to do a better job of managing their liquidity, as well as their assets and liabilities, to avoid liquidity risks caused by excessive growth in loan issuances.

It reiterated that it will maintain moderate growth in credit supplies while ensuring lending to the agricultural sector, the advanced manufacturing industry, strategic emerging industries and labor-intensive industries.

The central bank said it will continue to carry out a prudent monetary policy while actively using a combination of innovative tools, such as open market operations, short-term liquidity operations and standing lending facilities, to adjust liquidity to stave off abnormal fluctuations in the market.

The latest PBOC comment came as a swift follow-up to Monday's statement, in which the central bank asked the country's overextended lenders to manage liquidity risks, signalling no intention to help ease the current squeeze.

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