Saturday, December 11,
China’s central bank on Friday increased the required reserves ratio by 50 basis points, effectively draining the pool of cash available for lending.
But the decision to raise banks’ required reserves rather than interest rates means that officials have opted for a milder form of monetary tightening for the time being, suggesting that they believe prices pressures are still well within their ability to control.
The 50 basis point increase, which takes effect on Dec 20, will leave required reserve ratios at 18.5 percent, a record high for the majority of the country’s banks.
The move, the sixth RRR hike this year, came hours after China’s General Administration of Customs issued trade figures showing much stronger than expected imports and exports, pointing to a healthy economy that could absorb a bit more tightening.
The customs figures showed a big rebound in November in imports of major commodities such as copper, crude oil, soybeans and iron ore after a slow October, giving little evidence that demand has been weakened by the central bank’s monetary tightening.
Jonathan Barratt at Commodity Broking Services in Sydney said the RRR hike was evidence of the bank finessing its policy. He said that might potentially weigh on commodities as investors could anticipate additional tightening measures by Beijing.
Source: Reuters
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