China Curtails Bank Lending, Raises Required Bank Reserves

Beijing has tightened its monetary policy, raising the bank reserve requirement ratio by 0.5 percentage points and slightly increasing the interest rate on its one-year bill by 8 basis points to 1.84%.


The credit-tightening reflects concerns over a possible rise in inflation this year as China's economy continues to rebound from the global financial crisis. The move effectively curtails the ability of banks to extend more cash to businesses, says the South China Morning Post.


According to the Post, mainland banks approved a record 9.21 trillion yuan (HK$10.45 trillion) to stimulate the economy in the first 11 months of last year.


Yao Zhizhong and He Fan, economists with the Chinese Academy of Social Sciences, told the newspaper that two-thirds of that borrowed cash has poured into the country's stock and property markets. Both economists have warned that unless Beijing reins in its stimulus measures, the economy could overheat this year with 16% growth.


"Beijing now feels it is time to start tapping on the brakes," Brian Jackson, senior emerging markets strategist at RBC Capital Markets, told the Post in a separate interview.



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