The People’s Bank of China is preparing to flood the banking system with liquidity to boost lending, according to officials and advisers to the central bank, as its recent currency moves are squeezing yuan funds out of the market and renewing concerns over capital leaving Chinese shores.

The planned step-which involves cutting the deposits banks are required to hold in reserve-signals that the Chinese central bank's exchange rate maneuvering in the past two weeks is backfiring, forcing it to again resort to the reserve requirement reduction, the same easing measure that so far has failed to help spur economic activity.