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China’s anti-inflation crusade raises bank reserves: fourth time in four months

Monday, April 18th 2011 - 07:10 UTC
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Central bank Chairman Zhou Xiaochuan anticipates further tightening Central bank Chairman Zhou Xiaochuan anticipates further tightening

China raised banks' required reserves for the fourth time this year, extending the fight against excessive liquidity and stubbornly high inflation in the world's second-largest economy.

The reserve rate rise, which followed an increase in benchmark bank interest rates on April 5, was the seventh since China stepped up efforts against inflation in October and underscored the government's determination to keep the economy on an even keel.

The move was not a surprise -- investors predicted more tightening after last week's data showed acceleration in inflation, and more worryingly, sustained capital inflows that threaten to keep inflationary pressure high.

The central bank has also raised interest rates four times since October, slapped price control measures on certain commodities, and clamped down on property speculation. But price pressures driven by soaring global commodity prices and abundant liquidity continue to plague the Chinese economy.

Central bank Chairman Zhou Xiaochuan said on Saturday that policy tightening will continue for sometime, as inflation is higher that the government is comfortable with.

And last week, Premier Wen Jiabao signalled a hawkish stance for the coming months, saying that the government would use all tools at its disposal to wrestle inflation under control.

The 50-basis-point increase, effective from April 21, lifted the required reserve ratio for the country's biggest banks to a record 20.5%. It will lock up about 350 billion Yuan (53.6 billion US dollars) of cash that banks would otherwise be able to lend.

Categories: Economy, International.

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