China gets tough on bank lending
By Zhang Fengming |
January 15, 2011, Saturday
|
Print Edition
Print Edition
China's banks have been asked to set aside more money from lending to tame inflation, the fourth such order in more than two months.
The reserve requirement ratio on banks will rise by 0.5 percentage points from January 20, the People's Bank of China said yesterday.
Reserves vary between lenders, but China's biggest banks in China will face a record high of a 19.5 percent requirement.
It is estimated that the new order will remove nearly 400 billion yuan (US$61 billion) from the market.
By forcing banks to freeze more cash, policy-makers are draining excess money out of the economy and taming rising prices.
The Consumer Price Index, the main gauge of inflation, rose 5.1 percent in November, a 28-month high. China is due to announce its December figure next Thursday.
"The central bank's move is well expected to target excess liquidity," Lu Zhengwei, an Industrial Bank senior economist, said yesterday. "Inflation is the ultimate target."
Curbing inflation is a priority for China this year, and it has vowed to turn to a package of policies, including the reserve requirement increase and higher interest rates, to curb credit-driven inflation.
China's new yuan lending exceeded target in 2010. Banks across the country extended 7.95 trillion yuan of yuan-denominated loans last year, while the official target was 7.5 trillion yuan.
Meanwhile, China's M2, the broadest measure of money supply, grew a faster-than-expected 19.7 percent in 2010.
Moody's Analytics economist Alaistair Chan said China's strong bank lending and monetary aggregate data imply loose monetary conditions.
The frenzy of lending over the past two years helped China rebound quickly from the global crisis.
But, combined with bad weather and rising global commodity prices, it has complicated efforts to cool inflation.
Lu said the reserve requirement ratio could rise to a high of 23 percent by the end of the year.
Tighter monetary policies are widely expected by economists.
Qu Hongbin, HSBC China's chief economist, said he expected tightening measures in the first half of this year to tame inflation.
"2011 is the year of inflation," Qu said. "Inflation is likely to rise to up to 6 percent in the first half."
Qu said he expected an increase of 200 basis points, or 2 percentage points, on the reserve requirement and two interest rate increases in the first half.
China shifted its monetary policy from a relatively loose one to prudent this year and had raised interest rates twice and the reserve requirement ratio six times in 2010.
The reserve requirement ratio on banks will rise by 0.5 percentage points from January 20, the People's Bank of China said yesterday.
Reserves vary between lenders, but China's biggest banks in China will face a record high of a 19.5 percent requirement.
It is estimated that the new order will remove nearly 400 billion yuan (US$61 billion) from the market.
By forcing banks to freeze more cash, policy-makers are draining excess money out of the economy and taming rising prices.
The Consumer Price Index, the main gauge of inflation, rose 5.1 percent in November, a 28-month high. China is due to announce its December figure next Thursday.
"The central bank's move is well expected to target excess liquidity," Lu Zhengwei, an Industrial Bank senior economist, said yesterday. "Inflation is the ultimate target."
Curbing inflation is a priority for China this year, and it has vowed to turn to a package of policies, including the reserve requirement increase and higher interest rates, to curb credit-driven inflation.
China's new yuan lending exceeded target in 2010. Banks across the country extended 7.95 trillion yuan of yuan-denominated loans last year, while the official target was 7.5 trillion yuan.
Meanwhile, China's M2, the broadest measure of money supply, grew a faster-than-expected 19.7 percent in 2010.
Moody's Analytics economist Alaistair Chan said China's strong bank lending and monetary aggregate data imply loose monetary conditions.
The frenzy of lending over the past two years helped China rebound quickly from the global crisis.
But, combined with bad weather and rising global commodity prices, it has complicated efforts to cool inflation.
Lu said the reserve requirement ratio could rise to a high of 23 percent by the end of the year.
Tighter monetary policies are widely expected by economists.
Qu Hongbin, HSBC China's chief economist, said he expected tightening measures in the first half of this year to tame inflation.
"2011 is the year of inflation," Qu said. "Inflation is likely to rise to up to 6 percent in the first half."
Qu said he expected an increase of 200 basis points, or 2 percentage points, on the reserve requirement and two interest rate increases in the first half.
China shifted its monetary policy from a relatively loose one to prudent this year and had raised interest rates twice and the reserve requirement ratio six times in 2010.
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