Asian stocks drop on fears of China's monetary tightening
13 May 2011
Tightening of bank lending by China, lower earnings by Japanese companies and declining crude oil prices spooked Asian equity markets on Friday, with the MSCI Asia Pacific index dropping by 0.8 per cent.
The People's Bank of China, the country's central bank, raised the reserve ratio for commercial banks by another 50 basis points on Friday, the fifth increase this year and the eighth since October 2010.
The reserve ratio for the country's biggest bank will now be scaled up to a record high of 21 per cent, while for medium and small lenders it would be 17.5 per cent.
The move is part of the Chinese government's efforts to curb inflation, which clocked at 5.3 per cent in April. The central bank's strategy is expected to soak up excess liquidity from the economy, discouraging hot money inflows.
China has also decided to suspend diesel exports to conserve domestic supplies during the peak consumption season, the National Development and Reform Commission (NDRC), the country's planning agency, announced today.
Last month, Sinopec, Asia's largest refiner, had stopped export of petroleum products to Hong Kong and Macau, though today's NDRC order does not apply to these two regions.