China ordered banks to set aside more deposits as reserves for the second time in a month to cool the fastest-growing major economy after loan growth accelerated and property prices surged.
The reserve requirement will increase 50 basis points effective Feb. 25, the People’s Bank of China said on its Web site yesterday. The current level is 16 percent for big banks and 14 percent for smaller ones.
China’s policy makers aim to avert asset bubbles and restrain inflation after flooding the economy with money last year to drive the nation’s recovery from the first global recession since World War II.
The central bank said on Thursday that it wants to gradually normalize monetary conditions from a “crisis mode” after GDP expanded a more-than-forecast 10.7 percent in the fourth quarter from a year earlier, the fastest pace in two years.
The central bank on Jan. 12 increased banks’ reserve requirements for the first time since June 2008 after a record 9.59 trillion yuan (US$1.4 trillion) of new loans last year.
New loans last month soared to more than the previous three months combined, prompting the central bank to impose even higher reserve ratios on some individual banks.
Last month’s 1.39 trillion yuan of loans amounted to 19 percent of the 7.5 trillion yuan target set by the banking regulator for this year. M2 broad money supply rose 26 percent, compared with the central bank’s forecast of a 17 percent gain for this year as a whole.
Inflows of so-called hot money from abroad are complicating the central bank’s efforts to soak up liquidity and reduce the risk that the economy will overheat. Consumer prices rose for a third month last month after nine months of deflation.
While the central bank has reiterated it will maintain a “moderately loose” monetary policy stance this year, Governor Zhou Xiaochuan (周小川) told reporters on Tuesday that price increases would be “closely” monitored.
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