China Raises Bank Reserve Requirement to Cool Economy

China ordered banks to set aside more deposits as reserves for the second time in a month to cool the fastest-growing economy after loan growth accelerated and property prices surged., Bloomberg 2/12/2010 10:50:10 AM

The reserve requirement will increase 50 basis points, or 0.5 percentage point, effective Feb. 25, the People’s Bank of China said on its Web site today. The current level is 16 percent for big banks and 14 percent for smaller ones.

Policy makers aim to avert asset bubbles and restrain inflation after banks extended 19 percent of this year’s 7.5 trillion yuan ($1.1 trillion) lending target in January and property prices climbed the most in 21 months.

Record lending and a 4 trillion yuan stimulus package have helped the nation to lead the recovery from the first global recession since World War II.

Investors’ concern about investment bubbles in China, and what action the government may take to prevent or deflate them, has mounted this year.

The decision to raise the reserve requirement ratio doesn’t signal a change in monetary policy, the official Xinhua news agency said, citing an unnamed official from the central bank. Officials will maintain their moderately loose monetary policy, the report said.

The central bank said yesterday that it wanted to gradually normalize monetary conditions from a crisis mode” after gross domestic product grew 10.7 percent in the fourth quarter, the fastest pace in two years. It also said that not all countries will exit stimulus policies at the same time.

Economic data this week showed property prices across 70 cities surged 9.5 percent in January from a year earlier, exports climbed and producer-price inflation accelerated. Bank lending of 1.39 trillion yuan topped the total for the previous three months combined.

China Raises Bank Reserve Requirement to Cool Economy