China Raises Big Bank Reserve Ratio for 2 Months

China has raised reserve requirements for the six biggest commercial banks by 50 basis points on a temporary basis to cut the money supply without over-tightening.

The People’s Bank of China, the central bank, declined to comment on Reuters reports of the raise.

Xu Biao, an economist with China Merchants Bank in Shenzhen, said that the central bank was worried that capital inflows could be on the rise in the wake of broader dollar weakness.

“The central bank has to take some pre-emptive moves to control asset prices and inflation risks,” he said.

“On the other hand, the targeted and temporary move itself shows that the central bank is cautious about taking tightening steps. In other words, the central bank is reluctant to make any blanket tightening moves,” Xu added.

Qing Wang, chief China economist at Morgan Stanley in Hong Kong, said the reserve increase also suggests that bank lending is on the rise again after a year in which Beijing has clamped down on their issuance of credit.

“I suspect September loan growth was strong. Hot money inflows have been rising. But I don’t think this is a tightening move. It’s just part of liquidity management,” he said.

“It’s also good for managing inflation expectations.”

BEIJING (China Daily)