China Raises Bank Reserve Rate In Latest Move To Curb Inflation

China Raises Bank Reserve Rate In Latest Move To Curb Inflation
FRIDAY, 14 JANUARY 2011 10:45 WRITTEN BY NEWSROOM 0 COMMENTS

In yet another effort to cool an overheating Asian market , put further controls on lending- and to throw the anchor down in the face of rising inflation, China’s central bank has increased the amount of cash banks must keep on reserve for the seventh time in a year.

This change will be effective as of January 20; the central bank on Friday will now require state-owned banks to have on hand an additional 0.5 % of deposits as reserves.

Although reserves do vary by institution, this move could mean that, for the biggest commercial lenders, they will now be required to have up to 20% cash on hand.

These latest efforts come on the heels of ‘lending spree’ , and is the latest effort by Beijing to slow the flood of money coming to market, after stimulus efforts took root to help stem the global financial crisis.

In addition to the latest restriction for bank lending, there is still wide speculation that another interest rate hike is looming in the near future, wreaking havoc on the stock market today.

In China, consumer prices skyrocketed 5.1 %t in November- signalling the highest increase in 28 months- which is mostly attributed to surging food costs. Although inflation numbers for December have not yet been released, there is wide belief that the December numbers will surpass those from November- pushing the Central Bank to action now.

Year-over-year, inflation is still a large presence so far in the first quarter, spurring speculation that more measures may need to be taken, as early as the current quarter.