China tells banks to put more in reserve
By Wang Yanlin |
February 19, 2011, Saturday
|
Print Edition
Print Edition
CHINA yesterday asked banks to put aside more money as reserves to tame inflation and curb asset bubbles, the second such order in a month and 10 days after an interest rate increase.
The reserve requirement ratio for banks will rise by 0.5 percentage points from next Thursday, the People's Bank of China said on its website.
Reserves vary between lenders of different sizes, and China's biggest banks will face a record requirement of 19.5 percent. The move is expected to freeze more than 350 billion yuan (US$53.2 billion) from the market.
Nicholas Kwan, chief Asia economist of Standard Chartered Bank, said yesterday: "The central bank has to use other measures than interest rate rises to drain excessive market funds against asset price concerns and inflation."
China announced an interest rate rise on February 8, the last day of the week-long Spring Festival holiday. The surprising timing reflected the government's urgent need to tame housing and consumer prices.
However, against the background of nearly-zero interest rates in many other countries, such a move in China will lure more speculative money into the country.
The State Administration of Foreign Exchange said on Thursday that the net entry of speculative funds, or hot money, was estimated at US$35.5 billion in 2010, which accounted for the year's 7.6 percent of new foreign reserves, or 0.6 percent of China's gross domestic product.
"Facing relentless price rises in property and consumer goods, policy-makers may use the reserve requirement tool more often," said Lu Zhengwei, an analyst at the Industrial Bank. He expected another reserve requirement ratio increase next month.
The central bank's decision yesterday coincided with the announcement by the National Bureau of Statistics that new home prices picked up in all but two of the 70 major cities monitored in January, with 10 of them reporting a surge of more than 10 percent.
The cost of living is also becoming dearer. The Consumer Price Index, the main gauge of inflation, jumped 4.9 percent year on year last month, more than December's 4.6 percent and well above the government's yearly inflation target of 4 percent.
Food prices, the main driver of the current round of inflation, rocketed 10.3 percent amid bad weather and more demand ahead of the recent Spring Festival holiday.
In January, Chinese banks extended 1.04 trillion yuan of new yuan loans as lenders front-loaded loans in fear of further tightening.
But tighter measures are definitely on the way.
Ding Shuang, a Citigroup economist, said he expected three more interest rate increases this year, two in the first half and one in the second, coupled with more rises in reserve requirement ratio.
The State Information Center, a research unit under the National Development and Research Commission, said in a report last week that China's biggest banks may be required to put aside 23 percent of their money from lending by the end of this year.
The reserve requirement ratio for banks will rise by 0.5 percentage points from next Thursday, the People's Bank of China said on its website.
Reserves vary between lenders of different sizes, and China's biggest banks will face a record requirement of 19.5 percent. The move is expected to freeze more than 350 billion yuan (US$53.2 billion) from the market.
Nicholas Kwan, chief Asia economist of Standard Chartered Bank, said yesterday: "The central bank has to use other measures than interest rate rises to drain excessive market funds against asset price concerns and inflation."
China announced an interest rate rise on February 8, the last day of the week-long Spring Festival holiday. The surprising timing reflected the government's urgent need to tame housing and consumer prices.
However, against the background of nearly-zero interest rates in many other countries, such a move in China will lure more speculative money into the country.
The State Administration of Foreign Exchange said on Thursday that the net entry of speculative funds, or hot money, was estimated at US$35.5 billion in 2010, which accounted for the year's 7.6 percent of new foreign reserves, or 0.6 percent of China's gross domestic product.
"Facing relentless price rises in property and consumer goods, policy-makers may use the reserve requirement tool more often," said Lu Zhengwei, an analyst at the Industrial Bank. He expected another reserve requirement ratio increase next month.
The central bank's decision yesterday coincided with the announcement by the National Bureau of Statistics that new home prices picked up in all but two of the 70 major cities monitored in January, with 10 of them reporting a surge of more than 10 percent.
The cost of living is also becoming dearer. The Consumer Price Index, the main gauge of inflation, jumped 4.9 percent year on year last month, more than December's 4.6 percent and well above the government's yearly inflation target of 4 percent.
Food prices, the main driver of the current round of inflation, rocketed 10.3 percent amid bad weather and more demand ahead of the recent Spring Festival holiday.
In January, Chinese banks extended 1.04 trillion yuan of new yuan loans as lenders front-loaded loans in fear of further tightening.
But tighter measures are definitely on the way.
Ding Shuang, a Citigroup economist, said he expected three more interest rate increases this year, two in the first half and one in the second, coupled with more rises in reserve requirement ratio.
The State Information Center, a research unit under the National Development and Research Commission, said in a report last week that China's biggest banks may be required to put aside 23 percent of their money from lending by the end of this year.
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