The following is a response from Peter Stella, former chief of monetary and foreign exchange operations at the IMF on the subject of reserve requirements and whether or not they pose an inflationary or credit expansion threat.
The note was penned as a response to an article by Jeremy Siegel, the Russell E. Palmer Professor of Finance at the Wharton School of the University of Pennsylvania, in the FT calling for the Fed to raise reserve requirements. Read more
Here they are (via Reuters):
Today 13:31 – ECB’S DRAGHI – UNDERLYING PACE OF MONETARY EXPANSION CONTINUES TO BE MODERATE Read more
The People’s Bank of China raised banks’ reserve requirement ratio on Tuesday, the sixth time this year that China has used this tool to tame liquidity, Business China reports. The central bank said it will raise the RRR by 50 basis points starting June 20, taking the ratio to a record 21.5 per cent for the nation’s largest lenders. The move by the central bank came after China announced that consumer inflation reached its highest level in 34 months in May, up 5.5 per cent from a year earlier, the FT says. The benchmark consumer price index accelerated from the 5.3 per cent year-on-year rise recorded in April, despite government efforts to rein in liquidity and slow price rises.
China’s central bank has increased lenders’ reserve requirement ratios for the second time this year, by 50bps, a statement on its website said. The increase is the latest move to mop up liquidity in China’s banking system, following persistently high inflation, Reuters reports. Tightening had been widely anticipated in Chinese money market rates, Bloomberg reports. Metals and other commodities dipped as the announcement was made. Reserve requirement ratios will now stand at 19.5 per cent — however, some banks appear to have been asked to post additional reserves over recent weeks, the WSJ says.
The red hot inflation figures out of China on Friday make it all the more curious why China is pursuing what FT Alphaville calls an “anything-but-rate-hikes” strategy — evident in its move on Friday to raise banks’ reserve requirements, rather than deliver a much-awaited interest rate increase.
The 5.1 per cent rise in China’s CPI in November, as the FT reported on Friday, was higher than expected — up from 4.4 per cent in October, and well above Beijing’s 3 per cent inflation target. Read more