China raised banks’ reserve requirements to lock up cash and limit inflation after economic growth exceeded forecasts and consumer prices rose by the most since 2008.
Reserve ratios will increase a half point from Thursday, the People’s Bank of China said on its Web site yesterday. The move, taking the requirement to 20.5 percent for the nation’s biggest lenders, came less than two weeks after the central bank boosted benchmark interest rates.
“Tightening will continue until there are signs that inflation has been effectively brought under control,” Shen Jianguang (沈建光), a Hong Kong-based economist at Mizuho Securities Asia Ltd, said before yesterday’s announcement.
A surge in foreign exchange reserves to US$3 trillion last month, rebounding lending and money-supply growth have highlighted overheating risks in the fastest-growing major economy. GDP rose 9.7 percent in the first quarter from a year earlier and inflation accelerated to 5.4 percent, the most since July 2008, the statistics bureau said on Friday.
Inflation has exceeded the government’s target of 4 percent each month so far this year. The increase in reserve requirements was the fourth this year.
China is under “great pressure” from price increases, Chinese Premier Wen Jiabao (溫家寶) said on April 9. The government will remove monetary causes of inflation, he said, indicating the tools will include reserve requirements, interest rates, the exchange rate and bill sales to soak up cash.
Increasing the ratio reduces the amount of money banks have available to lend by forcing them to keep more of their deposits at the central bank.
New lending rebounded to 679 billion yuan (US$104 billion) last month and money-supply growth accelerated, central bank data showed. Extra liquidity from maturing bills may also have encouraged officials to move yesterday.
“China is by no means near the end of the current tightening cycle,” Dong Tao (陶冬), a Hong Kong-based economist with Credit Suisse Group AG, said before yesterday’s announcement.
A stronger yuan could help to ease inflation pressures by countering higher prices for imports.
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