China’s central bank raised reserve requirements for lenders 10 days after boosting interest rates as Premier Wen Jiabao tackles accelerating inflation and the risk of asset bubbles in the fastest-growing major economy.
Reserve ratios will increase half a percentage point starting February 24, the People’s Bank of China said on its website today in a one-sentence statement. The move will lock up about 356 billion yuan ($54 billion), Nomura Holdings said.
Lending surged in January and inflation quickened as new home prices rose in all but two of 70 cities monitored by the government, official reports showed this week. Central bank Governor Zhou Xiaochuan said policy makers may also use means “including rates and currency” to tackle inflation, in an interview in Paris after the reserve-ratio announcement.
“China has a profound liquidity and inflation problem that is, even with this latest tightening, getting further ahead of policy makers,” said Glenn Maguire, chief Asia economist at Societe Generale in Hong Kong.
Crude oil pared gains in London and extended losses in New York after the announcement. European stocks and US index futures fell. The Stoxx Europe 600 Index dropped 0.3 per cent at 10.30 am in London, while Standard & Poor’s Index futures slipped 0.2 per cent.
“This is just the start from China and they will continuing tightening lending and raising interest rates, doing their utmost to contain this,” said Philippe Gijsels, the Brussels-based head of research at BNP Paribas Fortis Global Markets. “If the Chinese start to take out the liquidity that’s been so important, it’s got the potential to be a disturbance for the world’s stock markets.”
In Paris, Zhou said raising reserve requirements is just one way to fight inflation.
“We can’t really say that it’s the only method that we’ll use to battle inflation, it’s about using all means including rates and currency,” he said. “One method doesn’t exclude the other,” said Zhou, who’s attending a gathering of Group of 20 finance ministers and central bankers.