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China raised banks’ reserve requirements for the third time this year, judging that inflation remains a bigger threat to the world’s second-largest economy than
Japan’s earthquake and nuclear crisis.
The proportion of lenders’ deposits that must be parked with the central bank will increase half a percentage point from March 25, the People’s Bank of China said on its
website today. The requirement will rise to 20 percent for the nation’s biggest banks, excluding any extra limits for individual lenders.
Premier
Wen Jiabao has set taming inflation as the nation’s top economic priority this year, citing “exorbitant” house- price increases and risks to social stability. China follows
India, which yesterday raised
interest rates, in tightening monetary policy even after Japan’s crisis roiled global stock markets and threatened to disrupt supply chains across Asia.
“This move, coming after the Indian rate hike yesterday, is another sign that the tragic events in Japan are unlikely to have a significant impact on policy decisions elsewhere in Asia,” said
Brian Jackson, an emerging-markets strategist at Royal Bank of Canada in Hong Kong. “Uncomfortably strong inflation throughout the region suggests that more policy action is required.”
Crude oil pared gains and copper fell after the announcement. The move may lock up about 350 billion yuan ($53 billion), according to Australia & New Zealand Banking Group.
Reining in Credit
An interest-rate increase for China is “a couple of weeks away,” said Shen Jianguang, a Hong Kong-based economist at Mizuho Securities
Asia Ltd. He said the reserve-ratio increase was to soak up money as central-bank bills matured. Shen estimated that annual inflation may accelerate to 6 percent this month, the fastest pace since July 2008.
The benchmark one-year lending rate stands at 6.06 percent after three increases since mid-October. The government is aiming to rein in credit growth after a record 17.5 trillion yuan ($2.7 trillion) of lending over 2009 and 2010.
“ This is clear evidence that the tightening agenda is still alive in China and signals that when nerves have settled, we will get more interest rate hikes,” said
Stephen Green, a Shanghai-based economist for Standard Chartered Plc.
People’s Bank of China Governor Zhou Xiaochuan said this month that rates will be used to curb inflation, and played down the role of currency gains, which U.S. officials have encouraged China to use as a tool.
Consumer prices rose at an annual 4.9 percent pace in February and output increased 14 percent in the first two months of 2011, according to the statistics bureau. Producer prices jumped 7.2 percent last month, the most since September 2008.
Inflation has topped the government’s 4 percent target for this year for each of the past five months.
