China tells banks to set aside even more money
By Zhu Shenshen |
April 18, 2011, Monday
|
Print Edition
Print Edition
China said yesterday commercial banks would be required to set aside more money from lending from Thursday, the fourth such order this year, in yet another effort by the central government to curb stubbornly high inflation.
The move follows figures showing that the country's inflation hit a 32-month high last month.
The reserve requirement ratio for banks will rise by 0.5 percentage points, the People's Bank of China said.
After the increase the requirement will stand at a record 20.5 percent.
It is estimated that the new order will siphon 376.4 billion yuan (US$57 billion) from the market.
"It's necessary now and it still leaves room for higher requirements in future because of huge capital liquidity in the market," said Tan Yaling, director of the China Forex Investment Research Institute.
In a recent note, Australian-based ANZ Bank said China would probably have another 0.25 percent interest rate rise and another reserve requirement rise in the second quarter.
Central bank head Zhou Xiaochuan said last week that China's tightening policy trend could continue for some time in the face of high inflation.
China's Consumer Price Index, the main gauge of inflation, climbed 5 percent on an annual basis in the first three months, compared with the country's 4 percent target for 2011.
In March, inflation hit 5.4 percent, the highest since July 2008, the National Bureau of Statistics said last week.
China's economy grew 9.7 percent in the first quarter to 9.63 trillion yuan, which also surpassed the nation's target, 8 percent for the year.
The new reserve requirement will pressure the stock market in the short term but won't influence long-term trends, said Li Daxiao, Yingda Securities' research director.
Most analysts expect the Shanghai stock index to range from 3,000 to 3,200 this week.
However, they are divided on how to curb inflation.
The reserve requirement ratio was "the most effective and direct way against hot money and high inflation," Pan Xiangdong, chief economist at Galaxy Securities, said. "It won't influence the whole economy like interest rate rises."
But Wang Xiaoguang, a researcher at the Chinese Academy of Governance, said China should take "tighter and more effective" measures to curb inflation, including more interest rate rises.
The move follows figures showing that the country's inflation hit a 32-month high last month.
The reserve requirement ratio for banks will rise by 0.5 percentage points, the People's Bank of China said.
After the increase the requirement will stand at a record 20.5 percent.
It is estimated that the new order will siphon 376.4 billion yuan (US$57 billion) from the market.
"It's necessary now and it still leaves room for higher requirements in future because of huge capital liquidity in the market," said Tan Yaling, director of the China Forex Investment Research Institute.
In a recent note, Australian-based ANZ Bank said China would probably have another 0.25 percent interest rate rise and another reserve requirement rise in the second quarter.
Central bank head Zhou Xiaochuan said last week that China's tightening policy trend could continue for some time in the face of high inflation.
China's Consumer Price Index, the main gauge of inflation, climbed 5 percent on an annual basis in the first three months, compared with the country's 4 percent target for 2011.
In March, inflation hit 5.4 percent, the highest since July 2008, the National Bureau of Statistics said last week.
China's economy grew 9.7 percent in the first quarter to 9.63 trillion yuan, which also surpassed the nation's target, 8 percent for the year.
The new reserve requirement will pressure the stock market in the short term but won't influence long-term trends, said Li Daxiao, Yingda Securities' research director.
Most analysts expect the Shanghai stock index to range from 3,000 to 3,200 this week.
However, they are divided on how to curb inflation.
The reserve requirement ratio was "the most effective and direct way against hot money and high inflation," Pan Xiangdong, chief economist at Galaxy Securities, said. "It won't influence the whole economy like interest rate rises."
But Wang Xiaoguang, a researcher at the Chinese Academy of Governance, said China should take "tighter and more effective" measures to curb inflation, including more interest rate rises.
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