Banks told: set aside cash in inflation fight
By Zhang Fengming |
November 11, 2010, Thursday
|
Print Edition
Print Edition
CHINA'S central bank yesterday told banks to set aside more capital from lending to control liquidity against the risk of rising inflation.
Commercial banks in China will face a 50 basis point increase on reserve requirement ratio from November 16, the People's Bank of China said on its website yesterday.
After the move, the biggest banks in China will have a record 18 percent reserve ratio.
The widely expected move came just one day before the release of China's October inflation data today, which economists said triggered the reserve increase.
"This was widely anticipated by the market as the consumer price index for November may exceed 4 percent," said UOB Kayhian Investment's Shanghai-based analyst Sheng Nan.
"We expect any selling pressure on banking shares to be short-lived," Sheng said.
The move follows an order last month instructing China's six big banks to freeze more capital from lending on a two-month temporary reserve requirement increase.
Then, Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, Bank of China, China Minsheng Banking Corp and China Merchants Bank were faced with a stricter reserve ratio.
China is de facto tightening its monetary policy on concerns of inflation and assets price bubbles, economists said.
Xia Bin, an adviser to the central bank, said at a forum in Beijing yesterday that monetary policy should become more "prudent" next year.
Inflation pressure is rising as consumers feel the pinch of higher costs for daily necessities and cut expenditure on leisure and entertainment.
Confidence among Chinese bankcard holders fell in October due to rising inflation and the first interest rate increase in nearly three years, said an industry report on Tuesday.
The Bankcard Consumer Confidence Index dropped to 85.69 last month, an annual decline of 1.69 points and 0.63 percentage point less than September.
Besides reserve increases, economists said they expect more interest rates rises under the pipeline.
The central bank surprisingly raised interest rates on October 20, the first rates increase in nearly three years.
But even after the increases, savings returns still lag behind the living cost.
The benchmark one-year savings rate sat at 2.50 percent after 25 basis points, or 0.25 percentage points, increase. The September inflation rose 3.6 percent, meaning a de factor negative 1.2 (3.6-2.5) percent savings rate.
China may miss the government's target for 3 percent inflation this year, the nation's top economic planning body said on Tuesday.
China targets its yearly new yuan loans to be within 7.5 trillion yuan this year, down from a record 9.6 trillion yuan in 2009. Banks have extended loans of 6.3 trillion yuan in the first three quarters.
The target for M2, the broadest measure of money supply, is set at 17 percent this year.
Commercial banks in China will face a 50 basis point increase on reserve requirement ratio from November 16, the People's Bank of China said on its website yesterday.
After the move, the biggest banks in China will have a record 18 percent reserve ratio.
The widely expected move came just one day before the release of China's October inflation data today, which economists said triggered the reserve increase.
"This was widely anticipated by the market as the consumer price index for November may exceed 4 percent," said UOB Kayhian Investment's Shanghai-based analyst Sheng Nan.
"We expect any selling pressure on banking shares to be short-lived," Sheng said.
The move follows an order last month instructing China's six big banks to freeze more capital from lending on a two-month temporary reserve requirement increase.
Then, Industrial and Commercial Bank of China, China Construction Bank, Agricultural Bank of China, Bank of China, China Minsheng Banking Corp and China Merchants Bank were faced with a stricter reserve ratio.
China is de facto tightening its monetary policy on concerns of inflation and assets price bubbles, economists said.
Xia Bin, an adviser to the central bank, said at a forum in Beijing yesterday that monetary policy should become more "prudent" next year.
Inflation pressure is rising as consumers feel the pinch of higher costs for daily necessities and cut expenditure on leisure and entertainment.
Confidence among Chinese bankcard holders fell in October due to rising inflation and the first interest rate increase in nearly three years, said an industry report on Tuesday.
The Bankcard Consumer Confidence Index dropped to 85.69 last month, an annual decline of 1.69 points and 0.63 percentage point less than September.
Besides reserve increases, economists said they expect more interest rates rises under the pipeline.
The central bank surprisingly raised interest rates on October 20, the first rates increase in nearly three years.
But even after the increases, savings returns still lag behind the living cost.
The benchmark one-year savings rate sat at 2.50 percent after 25 basis points, or 0.25 percentage points, increase. The September inflation rose 3.6 percent, meaning a de factor negative 1.2 (3.6-2.5) percent savings rate.
China may miss the government's target for 3 percent inflation this year, the nation's top economic planning body said on Tuesday.
China targets its yearly new yuan loans to be within 7.5 trillion yuan this year, down from a record 9.6 trillion yuan in 2009. Banks have extended loans of 6.3 trillion yuan in the first three quarters.
The target for M2, the broadest measure of money supply, is set at 17 percent this year.
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