China raises bank reserves, more tightening ahead
China's central bank on Friday raised lenders' required reserves by 50 basis points, the second such increase this year as it ratchets up a tightening campaign to rein in stubborn inflation.
February 18, 2011 / 16:34 IST
China's central bank on Friday raised lenders' required reserves by 50 basis points, the second such increase this year as it ratchets up a tightening campaign to rein in stubborn inflation.
China has also increased interest rates three times in the past four months and ordered banks to issue fewer loans. But annual inflation still rebounded to 4.9% in January from 4.6% a month earlier."A large amount of central bank bills are maturing, so the central bank has to raise banks' reserve requirements to mop up liquidity," said Wang Hu, economist at Guotai Junan Securities in Shanghai."It's possible for the central bank to raise required reserve ratios further, but the room is becoming limited," he added.In a short statement posted on its website, the People's Bank of China said the increase will be effective from February 24.The latest rise in banks' reserve requirements will take the level for the country's biggest lenders to a record 19.5%.Excess cash in the economy, stemming from China's trade surplus, is a root cause of fast-rising prices, prompting the central bank to use reserve requirements to lock up a bigger share of deposits and thereby slow money growth.Anti-inflation talk from the central bank in recent months has primed investors for more policy tightening and, even with the latest move, many believe further tightening is in the pipeline."China has been moving pretty swiftly in monetary tightening this year," said Zhu Song, a senior trader at Bank of Communications in Beijing. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
