CHINA ordered lenders Friday to lock up more of their money at the central bank for the second time in two weeks, stepping up its battle to pull excess cash out of the economy before inflation has a chance to take off.
The People s Bank of China said that it would increase banks required reserves by 50 basis points, its fifth such announcement this year. Including an earlier temporary increase, the move takes required reserve ratios (RRR) to 18.5 percent for big banks, a record high.
The tightening step was intended to strengthen liquidity management and appropriately control money and credit issuance, the central bank said in a statement on its Web site.
It was not a surprise and could be something of a relief for investors who had expected worse.
It suggests China is intent to manage price pressures through withdrawing liquidity from the system, said Xie Dongming, China economist at OCBC Bank in Singapore. However, it also suggests that China is being cautious about aggressive monetary tightening.
The central bank made the announcement after domestic markets had closed for the weekend.
Increasing reserve requirements is a more direct approach to absorbing the excess liquidity that has been spurring Chinese inflation.
The 50 basis point increase, which takes effect Nov. 29, should lock up about 350 billion yuan (US$52.7 billion) that banks could otherwise lend.
Along with playing a key role in the fight against inflation, policy tightening also signals the government s confidence that the world s second-largest economy is on solid ground, even as the United States and European recoveries remain fragile. (SD-Agencies)
