Bloomberg reported that China foreign exchange reserves climbed by a record last quarter and lending exceeded the government’s annual target, increasing pressure on the central bank to tighten policies to rein in liquidity and inflation.

The currency holdings, reported by the central bank on its website today, rose by USD 199 billion to USD 2.85 trillion, the biggest quarterly gain since Bloomberg data began in 1996. Full year yuan denominated lending of CNY 7.95 trillion compared with a target of CNY 7.5 trillion.

Economists from Standard Chartered Plc and Credit Agricole CIB said the central bank may need to raise benchmark interest rates, boost reserve requirements for lenders and allow faster yuan appreciation. Policy makers may also experiment with more ways of encouraging outflows of capital, after expanding a program for exporters to park revenue overseas and letting some citizens invest directly abroad.

The currency regulator is seeking to curb inflows of cash from investors attracted by China’s growth and the prospects for higher rates and a stronger currency. Officials are also testing measures to encourage Chinese businesses and investors to have more money offshore.

According to a January 7 local government statement a program to allow exporters to park revenue in overseas accounts was expanded nationwide from January 1. The government has also allowed citizens in the eastern city of Wenzhou to make direct investments overseas.

(Sourced from Bloomberg)