China raises reserve requirement
Paint it red: Chinese automotive workers check a car after it was painted at a factory on Friday. China yesterday raised its reserve requirement in a bid to prevent its economy from overheating. Picture: AFP
Sunday, December 9, 2007
CHINA tightened monetary policy aggressively yesterday, carrying out a central government order to curb inflation and prevent the economy from overheating.
The central bank raised the proportion of deposits that banks must hold in reserve instead of lending out by a full percentage point to a record 14.5 per cent with effect from December 25.
It was the tenth increase this year, but all the others have been by half a percentage point. The People's Bank of China (PBOC) announced the move, which will lock up some 350 billion yuan ($67.6 billion), on its website, www.pbc.gov.cn.
"The PBOC has already accelerated the pace of tightening," said Ben Simpfendorfer, an economist with the Royal Bank of Scotland in Hong Kong. "This underscores the seriousness of the change in the monetary policy stance and of problems with excess liquidity."
The central bank said it was acting in response to a decision to tighten monetary policy that was announced on Wednesday after a meeting of China's top leaders to chart economic policy for the year ahead.
The central bank has also raised interest rates five times so far in 2007 and is leaning on banks to freeze net new lending during the final two months of the year. In addition, bankers say the PBOC plans to introduce impose quarterly, not annual, lending quotas in 2008 so it can keep a closer check on credit.
With too much money sloshing around the banking system, policy makers are worried that plentiful easy credit is stoking unwanted investment and pumping up property and share prices.
"Obviously this is against the backdrop of the central authorities' clear signal that China should tighten its monetary conditions further," said Zhu Jianfang, chief economist at Citic Securities in Beijing.
Zhu said Saturday's move did not reduce the chances of one more rise in interest rates before the end of the year. He said there was talk in the market that consumer price inflation may accelerate to a decade high of 6.7 per cent in the 12 months to November from 6.5 per cent in October.Reuters
The central bank raised the proportion of deposits that banks must hold in reserve instead of lending out by a full percentage point to a record 14.5 per cent with effect from December 25.
It was the tenth increase this year, but all the others have been by half a percentage point. The People's Bank of China (PBOC) announced the move, which will lock up some 350 billion yuan ($67.6 billion), on its website, www.pbc.gov.cn.
"The PBOC has already accelerated the pace of tightening," said Ben Simpfendorfer, an economist with the Royal Bank of Scotland in Hong Kong. "This underscores the seriousness of the change in the monetary policy stance and of problems with excess liquidity."
The central bank said it was acting in response to a decision to tighten monetary policy that was announced on Wednesday after a meeting of China's top leaders to chart economic policy for the year ahead.
The central bank has also raised interest rates five times so far in 2007 and is leaning on banks to freeze net new lending during the final two months of the year. In addition, bankers say the PBOC plans to introduce impose quarterly, not annual, lending quotas in 2008 so it can keep a closer check on credit.
With too much money sloshing around the banking system, policy makers are worried that plentiful easy credit is stoking unwanted investment and pumping up property and share prices.
"Obviously this is against the backdrop of the central authorities' clear signal that China should tighten its monetary conditions further," said Zhu Jianfang, chief economist at Citic Securities in Beijing.
Zhu said Saturday's move did not reduce the chances of one more rise in interest rates before the end of the year. He said there was talk in the market that consumer price inflation may accelerate to a decade high of 6.7 per cent in the 12 months to November from 6.5 per cent in October.Reuters
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