Central bank in move to curb runaway lending
By Leo Zhang |
00:56 UTC+8 December 11, 2010
|
Print Edition
Print Edition
China is to ask commercial banks to set aside more capital from lending for the third time in five weeks, the central bank announced yesterday, as the nation steps up bids to tighten liquidity amid mounting inflation.
The reserve requirement ratio for lenders on Chinese mainland will be boosted by 0.5 percentage points from December 20, the People's Bank of China said on its website.
China's biggest lenders will have a reserve ratio of 18.5 percent while that of smaller banks will be 15 percent. This is expected to freeze 350 billion yuan (US$51 billion) of capital from lending.
The move was widely anticipated and came just one day before the release of China's November consumer prices growth, which analysts expect may reach a new height this year.
"That's exactly what we expected and may happen again in the next few months," said Wu Ke, a Zhongtian Investment Consulting Co analyst. "The central bank may also increase interest rates late this year or early next year to battle inflation."
China's consumer price growth hit a 25-month high of 4.4 percent in October. Producer prices, the factory-gate measure of inflation, also climbed 5 percent, indicating higher cost pressures as production becomes more expensive.
With the price of necessities such as rice, cooking oil, clothing and certain fruit and vegetables all rising rapidly, many consumers in big cities have started stockpiling goods.
It has also been reported that Shenzhen residents are traveling to Hong Kong, where prices are lower, to do their shopping.
The scenario has been prompting central government to introduce a fresh round of measures, including price controls, subsidies for poor households, reduced delivery costs, guaranteed fuel supplies and a crackdown on hoarding.
The central bank surprised the market by increasing benchmark interest rates in October, the first time in three years. It also increased the banks' reserve ratio twice in November. Yesterday's increase was the sixth this year, bringing the combined increase to 3 percentage points.
Early this month, central government announced a shift to a "prudent" monetary policy next year from the previous "moderately loose" stance.
The People's Bank of China also said yesterday that China's new yuan-denominated loans hit 564 billion yuan in November.
The new lending figure left this year's total just 50 billion yuan short of the government's target maximum of 7.5 trillion yuan.
"Consumer prices growth will still be fast in the next several months," said Liu Yu, an Orient Securities Co trader. "More hikes in both interest rates and banks' reserve ratio are expected next year as strong manufacturing and exports offer the government more room for tightening."
China's stock markets could find some comfort in the central bank's decision to raise reserves, as it might suggest a rise in interest rates could be postponed somewhat.
Local equities have shed more than 10 percent over the past month.
The reserve requirement ratio for lenders on Chinese mainland will be boosted by 0.5 percentage points from December 20, the People's Bank of China said on its website.
China's biggest lenders will have a reserve ratio of 18.5 percent while that of smaller banks will be 15 percent. This is expected to freeze 350 billion yuan (US$51 billion) of capital from lending.
The move was widely anticipated and came just one day before the release of China's November consumer prices growth, which analysts expect may reach a new height this year.
"That's exactly what we expected and may happen again in the next few months," said Wu Ke, a Zhongtian Investment Consulting Co analyst. "The central bank may also increase interest rates late this year or early next year to battle inflation."
China's consumer price growth hit a 25-month high of 4.4 percent in October. Producer prices, the factory-gate measure of inflation, also climbed 5 percent, indicating higher cost pressures as production becomes more expensive.
With the price of necessities such as rice, cooking oil, clothing and certain fruit and vegetables all rising rapidly, many consumers in big cities have started stockpiling goods.
It has also been reported that Shenzhen residents are traveling to Hong Kong, where prices are lower, to do their shopping.
The scenario has been prompting central government to introduce a fresh round of measures, including price controls, subsidies for poor households, reduced delivery costs, guaranteed fuel supplies and a crackdown on hoarding.
The central bank surprised the market by increasing benchmark interest rates in October, the first time in three years. It also increased the banks' reserve ratio twice in November. Yesterday's increase was the sixth this year, bringing the combined increase to 3 percentage points.
Early this month, central government announced a shift to a "prudent" monetary policy next year from the previous "moderately loose" stance.
The People's Bank of China also said yesterday that China's new yuan-denominated loans hit 564 billion yuan in November.
The new lending figure left this year's total just 50 billion yuan short of the government's target maximum of 7.5 trillion yuan.
"Consumer prices growth will still be fast in the next several months," said Liu Yu, an Orient Securities Co trader. "More hikes in both interest rates and banks' reserve ratio are expected next year as strong manufacturing and exports offer the government more room for tightening."
China's stock markets could find some comfort in the central bank's decision to raise reserves, as it might suggest a rise in interest rates could be postponed somewhat.
Local equities have shed more than 10 percent over the past month.
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