BEIJING: China's central bank increased the reserve requirement ratio for its commercial lenders by another 50 basis points on Tuesday, June 14, its sixth increase this year, extending its campaign to tame 34-month high inflation.
The increase will raise the ratio to a record 21.5% for China's biggest banks and lock up funds that could otherwise be lent out.
The increase will take effect on June 20, the central bank said in a short statement on its website.
By raising the reserve ratio, China hopes to drain its economy of excess liquidity, one of the main drivers of inflation.
China's inflation accelerated in May to 5.5%, its highest level in almost three years, suggesting the central bank will tighten monetary policy further even as economic growth slows down.
Non-food consumer prices climbed 2.9% from a year earlier, the fastest pace since records began in 2002, showing inflationary pressures are spreading more broadly in the economy and, for some, pointing to a rate rise this month.
The data suggested economic growth is slowing down, but not too quickly, providing relief for financial markets that China will avoid a hard landing and leaving room for Beijing to focus on fighting inflation.
Chinese leaders have made bringing inflation under control their top priority this year, fearful that rising prices could not only unsettle the world's second-biggest economy but spark social unrest of the sort seen this week in southern China.
"Inflation is quite persistent, while growth is still resilient, so basically we don't see any reason to pause tightening based on today's data," said Wei Yao, an economist at Societe Generale in Hong Kong.
"We think that a June interest rate hike is still on the cards. They could hike anytime."
China's central bank has raised banks' required reserves eight times to a record high and lifted interest rates four times since October to quell inflation. The one-year lending rate is 6.31 percent and one-year deposit rate is 3.25 percent.
"Inflation pressures remain large," Sheng Laiyun, a spokesman for China's National Bureau of Statistics told a news conference.
However, he said the economy was on track for "stable and relatively fast growth."
Investors read the data the same way. The Australian dollar and oil rose on a perception China can tighten policy in line with previous expectations and wouldn't need to adopt more aggressive action.
Still, markets may get only a modest lift from the data since investors are also worried about the euro area's debt crisis, high unemployment weighing on the U.S. economic recovery and how quickly Japan can recover from the March earthquake.
At 5.5%, China's consumer inflation in May was the highest in 34 months. It compared with expectations for 5.4% and showed a pick up from 5.3% in April.
Producer prices rose 6.8 percent from a year earlier, above forecasts in a Reuters poll for a rise of 6.5%. That added to the case for further tightening measures, said George Worthington, an economist at IFR Markets, a unit of Thomson Reuters.
Industrial output in May rose 13.3 percent from a year earlier, the slowest pace since November and broadly in line with expectations in a Reuters poll for an increase of 13.2 percent.
Power shortages have contributed to the slowdown in factory output growth, said Xu Biao, an economist at China Merchants Bank in Shenzhen.
"It's worth noting that the slowdown in industrial production is not as bad as some had expected."
May retail sales rose 16.9 percent from a year earlier, compared with expectations for an increase of 17.0 percent, while fixed-asset investment between January and May rose 25.8 percent from a year earlier, against expectations for a rise of 25.2 percent.
Real estate investment rose 34.6 percent in the first five months of 2011 from a year earlier, compared with a rise of 34.3 percent in the first four months.
China's money growth slowed to a 30-month low in May and banks extended fewer new loans than expected, data on Monday showed.
"Overall, China's economic growth is easing gradually, while consumer inflation is still within control. The central bank will raise interest rates again this month, but there will be no further rate rises for the rest of this year," said Xu Gao, an economist at China Everbright Securities in Beijing. - Reuters
The increase will raise the ratio to a record 21.5% for China's biggest banks and lock up funds that could otherwise be lent out.
The increase will take effect on June 20, the central bank said in a short statement on its website.
By raising the reserve ratio, China hopes to drain its economy of excess liquidity, one of the main drivers of inflation.
China's inflation accelerated in May to 5.5%, its highest level in almost three years, suggesting the central bank will tighten monetary policy further even as economic growth slows down.
Non-food consumer prices climbed 2.9% from a year earlier, the fastest pace since records began in 2002, showing inflationary pressures are spreading more broadly in the economy and, for some, pointing to a rate rise this month.
The data suggested economic growth is slowing down, but not too quickly, providing relief for financial markets that China will avoid a hard landing and leaving room for Beijing to focus on fighting inflation.
Chinese leaders have made bringing inflation under control their top priority this year, fearful that rising prices could not only unsettle the world's second-biggest economy but spark social unrest of the sort seen this week in southern China.
"Inflation is quite persistent, while growth is still resilient, so basically we don't see any reason to pause tightening based on today's data," said Wei Yao, an economist at Societe Generale in Hong Kong.
"We think that a June interest rate hike is still on the cards. They could hike anytime."
China's central bank has raised banks' required reserves eight times to a record high and lifted interest rates four times since October to quell inflation. The one-year lending rate is 6.31 percent and one-year deposit rate is 3.25 percent.
"Inflation pressures remain large," Sheng Laiyun, a spokesman for China's National Bureau of Statistics told a news conference.
However, he said the economy was on track for "stable and relatively fast growth."
Investors read the data the same way. The Australian dollar and oil rose on a perception China can tighten policy in line with previous expectations and wouldn't need to adopt more aggressive action.
Still, markets may get only a modest lift from the data since investors are also worried about the euro area's debt crisis, high unemployment weighing on the U.S. economic recovery and how quickly Japan can recover from the March earthquake.
At 5.5%, China's consumer inflation in May was the highest in 34 months. It compared with expectations for 5.4% and showed a pick up from 5.3% in April.
Producer prices rose 6.8 percent from a year earlier, above forecasts in a Reuters poll for a rise of 6.5%. That added to the case for further tightening measures, said George Worthington, an economist at IFR Markets, a unit of Thomson Reuters.
Industrial output in May rose 13.3 percent from a year earlier, the slowest pace since November and broadly in line with expectations in a Reuters poll for an increase of 13.2 percent.
Power shortages have contributed to the slowdown in factory output growth, said Xu Biao, an economist at China Merchants Bank in Shenzhen.
"It's worth noting that the slowdown in industrial production is not as bad as some had expected."
May retail sales rose 16.9 percent from a year earlier, compared with expectations for an increase of 17.0 percent, while fixed-asset investment between January and May rose 25.8 percent from a year earlier, against expectations for a rise of 25.2 percent.
Real estate investment rose 34.6 percent in the first five months of 2011 from a year earlier, compared with a rise of 34.3 percent in the first four months.
China's money growth slowed to a 30-month low in May and banks extended fewer new loans than expected, data on Monday showed.
"Overall, China's economic growth is easing gradually, while consumer inflation is still within control. The central bank will raise interest rates again this month, but there will be no further rate rises for the rest of this year," said Xu Gao, an economist at China Everbright Securities in Beijing. - Reuters
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