It’s been speculated upon, and on Tuesday it became fact: China’s central bank raised banks’ reserve requirements by 0.5 percentage points in a bid to ward off soaring inflation. The new measures will be effective from January 18, according to Reuters.
The decision is likely also to be a response to growing fears that an asset bubble might be developing in the country.
Here’s some additional context from Reuters:
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 the cabinet said Jan. 10 that the nation is on guard against inflows of speculative capital that may stoke price gains. “Inflation and exports may rebound faster than expected, pushing the government to scale back from an ultra-loose monetary policy, beginning the exit from stimulus,” Sun Wencun, a Beijing-based analyst Citic Securities Co., the nation’s largest listed brokerage, said before the announcement.
The increase comes on top of the Chinese bank raising yields on one-year securities auctioned on Tuesday by 8.29bps, as mentioned earlier on FT Alphaville.