Beijing’s central bank raises reserve requirement ratio


Fri, May 13, 2011 - Page 11

China’s central bank said yesterday it would raise the amount of money that lenders must keep in reserve to reduce liquidity as official concerns persist over inflation and rising housing costs.

The People’s Bank of China said it would raise its reserve requirement ratio by 0.5 percentage points, effective next Wednesday — the fifth such hike this year.

When the new measure takes effect, China’s commercial banks will be required to hold 21 percent of their deposits in reserve, based on earlier announcements made by the bank.

The move comes one day after the government said the country’s consumer price index rose 5.3 percent year-on-year last month — a slight easing from March, but well above Beijing’s official 4 percent target for this year.

The politically sensitive inflation reading had hit a 32-month high of 5.4 percent in March. Analysts had predicted more tightening measures were on the cards as Beijing tries to rein in rising costs of food and other essentials.

“A combination of yuan appreciation, bank reserve ratio increases and rate hikes will all be required to tame inflation and money supply growth,” Moody’s Analytics economist Matthew Circosta said in a research note on Wednesday.

Ahead of the central bank’s announcement, Chinese shares had closed down for the second straight day since the release of last month’s CPI data, falling 1.36 percent on renewed investor concerns over further tightening.

Interest rates have been hiked four times since October last year, and the central bank raised the reserve requirement ratio six times last year. The last reserve ratio hike took effect on April 21.