September 08, 2008

China raises banking reserve requirement ratio to 13%

It is reported that China ordered banks to set aside more money as reserves for the eighth time this year to cool speculation in stocks and real estate and curb the fastest inflation in 10 years. The People's Bank of China said Lenders must park 13% of deposits as reserves from October 25th 2007, up from 12.5%. The required ratio is the highest in almost a decade.

The central bank said in a statement that the move is aimed at strengthening liquidity management in the banking system and checking excessive credit growth. Excess liquidity could lead to price hikes and pour more fuel into the sizzling economy.

China's consumer prices surged 6.5% in August from a year earlier, the biggest jump since December 1996. The rate breached the government's annual 3% target for a fourth consecutive month, as food costs soared.

The customs authorities said China's trade surplus jumped 56% in September, taking it to USD 185.65 billion for the first nine months of the year, more than the USD 177.5 billion for all of last year.

Money supply is surging as the central bank sold the yuan to buy into the foreign currency brought into the country by the trade surplus. Some of that money is finding its way into stocks, pushing the benchmark CSI 300 Index up 181% this year. Money supply rose 18.5% in September.

China commercial banks lent out CNY 3.36 trillion in the first nine months surpassing the full year figure in 2006.