China’s central bank has ordered some banks to increase their reserve requirements by 0.5 of a percentage point in an apparent effort to curb rapid credit growth, three industry sources told reporters yesterday.
Chinese banking and property shares fell after the news, which fuelled market fears authorities may tighten policy further to ward off the risks of stronger inflation and asset bubbles at a time when capital inflows are growing.
Chinese officials have raised concern that the US Federal Reserve’s decision to pump US$600 billion into the US economy would lead to capital inflows hitting emerging markets, reflecting global tensions over economic rebalancing on the agenda of the G20 summit in Seoul.
The sources said the targeted banks included Bank of China (中國銀行), which fell 3.1 percent in Hong Kong, and Bank of Communications (交通銀行), which dropped 3.4 percent.
The latest step to drain liquidity from the banking system, which takes effect on Monday next week, follows a similar move in the middle of last month, which expires in the middle of next month.
The central bank also surprised financial markets on Oct. 19 by announcing the first increase in official interest rates since December 2007.
Up to that point, the central bank had largely relied on increases in bank reserve requirements and targeted policies on property to try to control any inflation threats.
Annual consumer inflation rose in September to a 23-month high of 3.6 percent and analysts polled by Reuters expect data today to show that it climbed to 4 percent last month.
“Inflation could get out of hand if we don’t take any actions right now,” said Wang Jun (王軍), economist at the China Center for International Economic Exchanges (中國國際經濟交流中心), a government think tank in Beijing.
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