China raised the proportion of deposits that banks must set aside as reserves to cool the world’s fastest-growing major economy as a credit boom threatens to stoke inflation and create asset bubbles.
Reserve requirements will increase by 50 basis points from January 18, the central bank said on its Web site this evening. The existing levels are 15.5 per cent for big banks and 13.5 per cent for smaller ones.
Chinese lenders added a record 9.21 trillion yuan ($1.3 trillion) of loans in the first 11 months of 2009, driving an economic rebound after the global financial crisis slashed exports. Credit growth surged last week, local media reported yesterday, and exports rose for the first time in 14 months in December, trade data showed on January 10.
Policy makers “are following through on their pledge to guide credit in order to pre-empt rising inflation and avoid asset-price bubbles,” said Jing Ulrich, chairwoman of China equities and commodities at JPMorgan Chase & Co in Hong Kong.
The increase, the first since June 2008, excludes rural cooperatives to aid agricultural output, the central bank said.
The People’s Bank of China also sold bills at a higher yield for the second time in a week today. The moves fueled speculation that policy makers will raise benchmark interest rates in the first half of the year.
BNP Paribas SA brought forward its forecast for higher rates to the second quarter from the third. China’s benchmark one-year lending rate is at a five-year low of 5.31 per cent.
“The central bank may raise policy rates earlier than market consensus which is the second half of this year,” said Ma Jun, chief China economist at Deutsche Bank AG in Hong Kong. “The trigger for the central bank is inflation as consumer prices may have climbed a higher-than-expected 2 per cent in December.”
Banks lent about 100 billion yuan ($14.6 billion) each day last week, the official China Securities Journal reported. That compares with 294.8 billion yuan for all of November. December data is yet to be released.
While Chinese lending is typically biggest at the start of each year, the central bank said last week that it is aiming for “moderate” credit growth in 2010.
China’s economy grew 8.9 per cent in the third quarter of 2009 from a year earlier, the fastest pace in a year. Yao Zhizhong and He Fan, economists with the Chinese Academy of Social Sciences, warned this week that growth could accelerate to 16 per cent this year, overheating the economy, unless stimulus measures are reined in.
Today’s move “sends a pretty strong signal that a more substantive tightening is probably coming,” said Mark Williams, senior China economist at Capital Economics Ltd in London. “It warns banks and it warns firms that they’re going to face higher interest rates down the road.”
Economists are ratcheting up 2010 inflation forecasts for China. Citic Securities Co, the nation’s biggest listed brokerage, raised its estimate to 3.2 per cent from 2.6 per cent in a report dated yesterday.
Bank of America Merrill Lynch last week increased its forecast to 3.1 per cent from 2.5 per cent.
Premier Wen Jiabao pledged December 27 to curb excessive property-price gains in some parts of China after the biggest nationwide increase in 16 months in November.
