China's central bank on Friday raised the amount of money the country's lenders must keep on reserve for the third time in a month, following a spate of robust data that strengthened the case for policy tightening. The latest step to raise the reserve requirement ratio (RRR), aimed at mopping up excess cash in the economy, had been widely expected after Beijing announced a shift to a "prudent" monetary policy from the previous "moderately loose" stance earlier this month.
Chinese exports, imports both blow past expectations China earlier reported strong trade figures for November that could fuel fresh criticism of Beijing's exchange rate regime, and ahead of data on Saturday that is expected to show another pick-up in inflation, already running at its fastest clip in more than two years.
Friday's 50 basis point increase, which takes effect on December 20, will leave the reserve requirement rate at 18.5 percent, a record high for the majority of the country's banks. "There is still much scope for the central bank to raise reserve ratios next year - we expect several increases in the first quarter of next year and the ratio should reach as high as 23 percent in 2011," said Lu Zhengwei, chief economist at Industrial Bank in Shanghai.
The central bank surprised the market in October by raising interest rates for the first time in nearly three years, and many analysts believe it may have to hike again in the near term to head off inflation risks. Reflecting the challenge facing policymakers, data on Friday showed China's imports and exports jumped in November, bank lending topped forecasts and property investment powered ahead.
November imports rose 37.7 percent from a year earlier to easily top forecasts for a 24.2 percent increase, powered by China's voracious appetite for commodities. Chinese imports have developed a habit over the past two years of surprising on the upside. In that respect, the 34.9 percent jump in exports, above market expectations for a 22.0 percent increase, was the bigger surprise.
Evidence for that view was in the fact that shipments of final goods to markets such as Europe and the United States outstripped those of intermediate goods to Asia. Exports to the United States were up 32.2 percent, while shipments to the European Union, its biggest trading partner, climbed 33.8 percent. The rise in exports left China with a hefty surplus of $22.9 billion in November, the seventh straight month of impressive trade performance. Chinese consumer price inflation may have hit 5.1 percent in the year to November, a 28-month high, state media reported on Friday. That would mark a sharp pick-up from 4.4 percent in October.
China's wide M2 measure of money supply rose 19.5 percent in November from a year earlier, while banks extended 564 billion yuan in new local currency loans in November, the central bank said. Both numbers were slightly ahead of expectations. Banks have already just about hit the 7.5 trillion yuan loan quota set by the government at the start of the year. China's leaders on Friday opened the three-day Central Economic Work Conference, a gathering where they will set the policy direction for next year.