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China imposes second banks’ reserve hike in two weeks

Friday, November 19th 2010 - 18:07 UTC
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Fearful of inflation and food prices Fearful of inflation and food prices

China's central bank has raised the amount of money that lenders must keep in reserve, as it moves again to try to control the country's high inflation. The People's Bank of China said the reserve ratio would go up by a further 0.5 percentage points on 29 November.

It is the fifth time this year that the central bank has made such a move, and the second announcement this month. It comes after Chinese inflation hit a two-year high of 4.4% last week on the back of the fast-growing economy.

The central bank hopes that increasing the level of funds Chinese banks have to keep in reserve will help to dampen inflation, as it will limit the amount of money the banks can lend.

China is particularly concerned at higher food prices, and moved this week to introduce subsidies for poorer families. The cabinet also said it would take “forceful” measures to rein in inflation.

The central bank increased interest rates last month for the first time since 2007.

It raised its one-year lending rate to 5.6% from 5.31%, and its one-year deposit rate to 2.5% from 2.25%.

Dongming Xie, China economist at OCBC Bank in Singapore, said: “The second RRR [reserve rate requirement] hike in two weeks suggests China is intent to manage price pressures through withdrawing liquidity from the system.

”However, it also suggests that China is being cautious on aggressive monetary tightening.”

The amount of money Chinese banks has to keep in reserve as a percentage of their balance sheet differs according to their size and the industries they predominantly lend to” (BBC).-

Categories: Economy, International.

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