For the fourth time this year China has raised the amount of money banks must hold in reserve, reducing the amount available for lending in a new effort to cool an investment boom. Repeated interest rate hikes and investment curbs imposed on real estate over the past year have all met with very limited success.
So the amount of reserves that lenders must keep with the central bank has been raised 0.5% to 11% of their deposits. The People’s Bank of China said the increase takes effect May 15.
In its Web site the ban said that the increase ‘is aimed at stepping up liquidity management of the banking system and to guide a reasonable growth of credit.’
Will it work on slowing down the building boom?
On past recent experience, no.
Beijing has raised the bank reserve ratio seven times over the past year, each time by 0.5%. It stood at 7.5% of deposits before the first increase last June. The last increase was April 16.
Compare those fairly restrained increases with:
The economy surged 11.1% in the first quarter of this year.
The consumer price index rose 3.3% in March.
Xixed-asset investment grew 23.7% during March.
Last year the economy grew 10.7% – the highest rate since 1995.
The trade surplus hit a record $177.5 billion in 2006, up 74% from the previous year, straining ties with Washington and other trade partners who say Beijing has not done enough to let its currency appreciate.
Source: CNBC
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