THE central bank Friday raised the amount of money the country s lenders must keep on reserve for the third time in a month, following a spate of robust data that strengthened the case for policy tightening.
The latest step to raise the reserve requirement ratio (RRR), aimed at mopping up excess cash in the economy, had been widely expected after the Central Government announced a shift to a prudent monetary policy from the previous moderately loose stance earlier this month.
Friday s 50 basis point increase, which takes effect Dec. 20, will leave the reserve requirement rate at 18.5 percent, a record high for the majority of the country s banks.
There is still much scope for the central bank to raise reserve ratios next year we expect several increases in the first quarter of next year and the ratio should reach as high as 23 percent in 2011, said Lu Zhengwei, chief economist at Industrial Bank in Shanghai.
As for whether the central bank will raise interest rates, I think it will largely depend on the CPI figure in the coming months.
The central bank surprised the market in October by raising interest rates for the first time in nearly three years, and many analysts believe it may have to hike again in the near term to head off inflation risks.
Reserve requirement hikes aren t going to prove totally sufficient in dealing with overall inflation. Monetary tightening by year-end is inevitable, I wouldn t rule it out in the very near term, said Jeremy Stretch, currency strategist at CIBC.(SD-Agencies)
