China ups banks' reserve requirement for a fifth time this year
12 May 2011
China increased banks' reserve requirements for the fifth time this year in a bid to rein in prices, underscoring the risk that tightening measures would slowdown the world's second-biggest economy.
Reserve ratios are to increase 0.5 percentage point from 18 May, the People's Bank of China said in its website today. This would boost levels for the nation's biggest lenders to a record 21 per cent.
The central bank's move came following reports yesterday that pointed to inflation and lending exceeding the estimates of economists in April, with consumer prices rising more than 5 per cent for a second month.
Premier Wen Jiabao aims to gain control over inflation that has started spreading beyond food to other goods, while the economy showed signs of cooling.
According to analysts, controlling inflation would definitely come with a slowdown in growth and the authorities understood this.
The central bank sold ¥40 billion yuan ($6.2 billion) of three-year bills in regular open market operations today as part of its efforts to soak up excessive cash in the economy.
According to government data, China's factory output growth in April eased by more than what was expected, pointing to a cooling of the economy even as inflation remained stubbornly high at 5.3 per cent in the year to April.
Policymakers, targeting 4 per cent average inflation for 2011, have assigned top priority to inflation-fighting following fears of high food prices and broader inflation that could destabilise the economy or even lead to social unrest.