Another cut in cash for lending
By Cherry Cao |
March 19, 2011, Saturday
|
Print Edition
Print Edition
CHINA yesterday said it will order its banks to set aside more capital from lending for the third time this year as part of ongoing efforts to tighten liquidity amid mounting inflation.
The reserve requirement ratio for lenders will be raised by 0.5 percentage points from March 25, the People's Bank of China said on its website.
After the increase, the nation's biggest lenders will face a record reserve ratio of 20 percent while that of smaller banks will be 16.5 percent. The move is expected to freeze another 360 billion yuan (US$54.8 billion) of capital from lending.
The move, widely anticipated by the market, came a week after the release of China's February consumer prices index. CPI, a main gauge of inflation, rose 4.9 percent year on year last month, according to the National Bureau of Statistics.
"That's exactly what we expected," said Zuo Xiaolei, chief economist at China Galaxy Securities. "The central bank will maintain its prudent monetary policy and stick to its earlier set annual target for M2."
M2, the broader measure of money supply, rose 15.7 percent year on year in February, shy of an expected 17 percent increase and also short of the central government's annual target of 16 percent.
China has raised interest rates three times since October to combat inflation. With yesterday's move included, it has also raised the reserve requirement ratio nine times since last year.
Inflation pressure remains high at present with the CPI likely to rise 5.3 percent in March from a year earlier, Li Huiyong, chief economist at Shenyin Wanguo Securities, told Hexun.com yesterday.
The reserve requirement ratio may be raised again around April, and the one-year benchmark deposit rate at commercial banks could also be raised from the current 3 percent to 3.5 percent by the end of the year, Li said.
A prudent monetary policy is key in keeping prices stable, Citibank said in a note released last week.
"We expect the front-loaded monetary tightening to continue, with three more interest rates increases and a couple more reserve requirement increases during the year, supported by a 5 percent annual appreciation against the US dollar," it said.
The reserve requirement ratio for lenders will be raised by 0.5 percentage points from March 25, the People's Bank of China said on its website.
After the increase, the nation's biggest lenders will face a record reserve ratio of 20 percent while that of smaller banks will be 16.5 percent. The move is expected to freeze another 360 billion yuan (US$54.8 billion) of capital from lending.
The move, widely anticipated by the market, came a week after the release of China's February consumer prices index. CPI, a main gauge of inflation, rose 4.9 percent year on year last month, according to the National Bureau of Statistics.
"That's exactly what we expected," said Zuo Xiaolei, chief economist at China Galaxy Securities. "The central bank will maintain its prudent monetary policy and stick to its earlier set annual target for M2."
M2, the broader measure of money supply, rose 15.7 percent year on year in February, shy of an expected 17 percent increase and also short of the central government's annual target of 16 percent.
China has raised interest rates three times since October to combat inflation. With yesterday's move included, it has also raised the reserve requirement ratio nine times since last year.
Inflation pressure remains high at present with the CPI likely to rise 5.3 percent in March from a year earlier, Li Huiyong, chief economist at Shenyin Wanguo Securities, told Hexun.com yesterday.
The reserve requirement ratio may be raised again around April, and the one-year benchmark deposit rate at commercial banks could also be raised from the current 3 percent to 3.5 percent by the end of the year, Li said.
A prudent monetary policy is key in keeping prices stable, Citibank said in a note released last week.
"We expect the front-loaded monetary tightening to continue, with three more interest rates increases and a couple more reserve requirement increases during the year, supported by a 5 percent annual appreciation against the US dollar," it said.
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