MercoPress. South Atlantic News Agency

China ups bank reserves and reiterates 2010 “moderate” credit growth policy

The increase in cash reserves is the first since June 2008

China announced that banks will have to hold more cash in reserves to help cool the world’s fastest-growing major economy as a credit boom threatens to stoke inflation and create asset bubbles.

Reserve requirements will increase by 50 basis points from January 18, the strong central bank message said on its Web site. The existing levels are 15.5% for big banks and 13.5% for small banks.

According to official statistics Chinese lenders added a record 9.21 trillion Yuan (1.3 trillion USD) of loans in the first 11 months of 2009, driving an economic rebound after the global financial crisis slashed exports. The decision follows the announcement by local media that Chinese exports rose for the first time in 14 months in December.

The increase, the first since June 2008, excludes rural cooperatives to aid agricultural output, the central bank said.

The People’s Bank of China also sold bills at a higher yield for the second time in a week on Wednesday. The moves fueled speculation that policy makers will raise benchmark interest rates in the first half of the year.

Banks lent about 100 billion Yuan (14.6 billion USD) each day last week, the official China Securities Journal reported. That compares with 294.8 billion Yuan for all of November. December data is yet to be released.

While Chinese lending is typically biggest at the start of each year, the central bank said last week that it is aiming for “moderate” credit growth in 2010.

China’s economy grew 8.9% in the third quarter of 2009 from a year earlier, the fastest pace in a year. Yao Zhizhong and He Fan, economists with the Chinese Academy of Social Sciences, warned this week that growth could accelerate to 16% this year, overheating the economy, unless stimulus measures are reined in.

Premier Wen Jiabao pledged December 27 to curb excessive property-price gains in some parts of China after the biggest nationwide increase in 16 months in November.