China’s central bank said yesterday it would raise the amount of money lenders must keep in reserve, the latest in a series of such hikes aimed at reining in high inflation.
The bank reserve requirement ratio will be raised by 50 basis points beginning on Thursday, the People’s Bank of China said in a statement.
Ever fearful of inflation’s potential to spark social unrest, Beijing has been pulling on a variety of levers to check consumer prices and calm growing anxiety about soaring food costs and property values.
Last month, the central bank hiked interest rates for the second time in less than three months. It also increased the reserve requirement ratio six times last year, a move that effectively limits the amount of funds banks can lend and thereby curbs the liquidity blamed for helping fuel inflation.
The central bank statement gave no other details.
The move will come as little surprise, because the government has repeatedly declared its intention to bring inflation under control this year after it hit 5.1 percent in November, the highest rate in more than two years.
In a research note, China analyst Mark Williams of London-based Capital Economics said the announcement “will be seen in part as a response to rapid lending reported in the first week of January.”
The move indicated China was wary of a new interest rate hike for now owing to the belief it could further fuel speculative money flows from overseas blamed for contributing to inflation, he wrote.
Last month, after China raised interest rates for the second time in less than three months, Chinese Premier Wen Jiabao (溫家寶) acknowledged the price pressures faced by low-income families and said the government was “fully able to control” prices.
Central bank governor Zhou Xiaochuan (周小川) on Dec. 31 also reiterated that the bank would keep prices stable this year, which analysts said likely meant further interest rate hikes and other tightening measures were on the way.
Beijing is desperately seeking to calm public concern over rising prices, particularly the everyday food costs that hit China’s hundreds of millions of poor hard.
Authorities have taken repeated steps to turn off the spigot of bank lending that saw new loans nearly double to 9.6 trillion yuan (US$1.46 trillion) in 2009 as banks heeded the government’s call to spur the economy amid the global financial crisis.
Beijing is also concerned soaring property prices will lead to a real estate bubble that could burst with calamitous results for the world’s second-largest economy.
The World Bank said on Thursday that China still had plenty of room for further interest rate hikes.
“There’s a lot of scope for increasing interest rates further,” Ardo Hansson, the bank’s chief economist for China, told reporters.
The China Securities Journal yesterday quoted unnamed analysts as saying another rise could be on the way in the next few weeks.
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