China's central bank, battling to restrain growth in the money supply and inflation, announced it was lifting the proportion of deposits that commercial banks must keep in reserve to a record high.
The 0.5 percentage point rise in banks' reserve ratios, the ninth this year, will take effect on November 26 and bring the ratio for big banks to 13.5 percent, the central bank said on Saturday.
The monetary tightening came two days after the central bank issued its strongest warning so far this year about rising prices, saying: "Our consumers' expectations of inflation are growing, and will probably push up inflation further."
This year inflation has become an economic and potentially political problem for the government as the economy expands at double-digit rates and China's ballooning trade surplus pours money into the real estate and stock markets.
Inflation hit a 10-year high of 6.5 percent in August, before declining slightly to 6.2 percent in September. October inflation data are due to be announced on Tuesday, and financial markets are expecting a rate of at least 6.4 percent.
China has also raised benchmark interest rates five times this year in an effort to keep bank deposit rates from lagging far behind inflation. Chinese authorities appear to have concluded in recent months that the traditional method of fighting inflation - interest rate hikes - is not working well.
Although the financial markets expect at least one more interest rate hike this year, China may not have much more room to use this tool because of the shrinking gap between its rates and higher US rates. The gap has narrowed to just 0.6 percentage point from 2.4 percentage points early this year as the US subprime loan crisis has forced cuts in US rates. If the gap disappears, the flood of speculative money into China could increase.
So authorities are keen instead to take more money directly from banks through steps such as reserve ratio rises. They are also mounting a strong campaign of "window guidance" - advice given in private meetings with commercial bankers - to persuade banks to curb their lending.
Comments
Comments are closed.