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China Tightens again!

China Tightens FurtherFNArena News – March 22 2011

– Beijing increases its reserve ratio for the ninth time in 12 months
– Another rate hike already priced in
– Economists at odds over the ongoing pace of tightening measures

By Greg Peel

Last Friday the People’s Bank of China announced yet another increase to the reserve requirement ratio for depository institutions, this time by 50 basis points. That’s the third RRR hike this year and the ninth in twelve months. It means large Chinese banks must now set aside 20% of capital as reserves – almost at the historical peak set in 1984.

To ANZ economists, the timing of this increase means Beijing has decided the disaster in Japan will not derail Chinese economic growth (nor will, one presumes, the MENA situation). The PBoC is also intent on staying ahead of the inflationary curve. Last month’s CPI reading of 4.9% was steady on the previous month’s reading, but a slight drop was expected given earlier policy moves.

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