Banks told to put more cash aside once again
By Zhang Fengming |
November 20, 2010, Saturday
|
Print Edition
Print Edition
CHINA yesterday told banks to put aside more money from lending, the second such order in a month and the fifth this year, in a bid to curb liquidity with inflation standing at a 25-month high.
The reserve requirement ratio on banks will rise by 0.5 percentage points from November 29, the People's Bank of China said on its website yesterday. The last order took effect only on Tuesday.
It is estimated that the new order will siphon US$50 billion out of the market.
Big banks in China will now face a record 18.5 percent reserve requirement.
China is tightening its monetary policy against a backdrop of rapid loan growth, mounting inflation and pressure of capital inflows in the wake of quantitative easing by the United States.
Ample liquidity was listed as one of the drivers pushing up inflation.
"Inflation is dominating the market's attention," said Stephen Green, head of research at Standard Chartered Bank China. "We still expect more interest rate hikes, even after this new reserve requirement."
China's inflation rose 4.4 percent in October, a 25-month high. Standard Chartered yesterday raised its forecast on China's 2011 inflation to 5.5 percent from a previous estimate of 4 percent.
Standard Chartered said it expected more monetary tightening to tame inflation. Measures include three or four more reserve requirement increases in the first half of next year, monthly loan quotas, plus four more interest rate increases by the middle of 2011. The view is widely echoed in the market.
"This round of inflation is a monetary phenomenon," said Tommy Xie, an OCBC Bank economist. "The root is excessive liquidity and a lack of domestic investment channel.
"As it's a monetary phenomenon, it makes sense to use monetary policy to curb inflation."
The central bank surprised many analysts by raising interest rates on October 20, the first increase in almost 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 the 0.25 percentage points increase.
China may miss the government's target for 3 percent inflation this year, the nation's top economic planning body admitted earlier this week.
"Monetary policy may help in the short run to cool off inflation, but is no panacea to the structural problem in the long run," Xie said.
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 6.9 trillion yuan in the first 10 months.
The target for M2, the broadest measure of money supply, is set at 17 percent this year.
The reserve requirement ratio on banks will rise by 0.5 percentage points from November 29, the People's Bank of China said on its website yesterday. The last order took effect only on Tuesday.
It is estimated that the new order will siphon US$50 billion out of the market.
Big banks in China will now face a record 18.5 percent reserve requirement.
China is tightening its monetary policy against a backdrop of rapid loan growth, mounting inflation and pressure of capital inflows in the wake of quantitative easing by the United States.
Ample liquidity was listed as one of the drivers pushing up inflation.
"Inflation is dominating the market's attention," said Stephen Green, head of research at Standard Chartered Bank China. "We still expect more interest rate hikes, even after this new reserve requirement."
China's inflation rose 4.4 percent in October, a 25-month high. Standard Chartered yesterday raised its forecast on China's 2011 inflation to 5.5 percent from a previous estimate of 4 percent.
Standard Chartered said it expected more monetary tightening to tame inflation. Measures include three or four more reserve requirement increases in the first half of next year, monthly loan quotas, plus four more interest rate increases by the middle of 2011. The view is widely echoed in the market.
"This round of inflation is a monetary phenomenon," said Tommy Xie, an OCBC Bank economist. "The root is excessive liquidity and a lack of domestic investment channel.
"As it's a monetary phenomenon, it makes sense to use monetary policy to curb inflation."
The central bank surprised many analysts by raising interest rates on October 20, the first increase in almost 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 the 0.25 percentage points increase.
China may miss the government's target for 3 percent inflation this year, the nation's top economic planning body admitted earlier this week.
"Monetary policy may help in the short run to cool off inflation, but is no panacea to the structural problem in the long run," Xie said.
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 6.9 trillion yuan in the first 10 months.
The target for M2, the broadest measure of money supply, is set at 17 percent this year.
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