BEIJING (AP) — Chinese banks were ordered to set aside more reserves Wednesday in a new move to curb lending as Beijing tries to cool rising inflation.
The central bank’s order came on the eve of Thursday’s release of figures that are expected to show inflation surged past 4 percent in October, above the government’s 3 percent target. September inflation was 3.6 percent.
Consumer prices are especially sensitive in a society where poor families spend up to half their incomes on food. Rising incomes have helped to offset price hikes, but chronic inflation erodes the value of savings and raises the prospect of unrest.
While other governments try to shore up weak growth, China rebounded quickly from the global crisis with a huge stimulus and has shifted focus to cooling inflation and restoring normal economic conditions. China raised its key lending rate last month for the first time since the financial crisis struck.
Wednesday’s order told banks to increase reserves by 0.5 percent of deposits, effective next Tuesday, to shrink the pool of money available for credit. The total level would vary by lender, but could be as high as 18.5 percent of deposits for the biggest institutions.
The decision suggests both October inflation and growth in bank lending exceeded analysts’ forecasts, said economist Mark Williams of Capital Economics.
“Today’s move is likely to raise expectations that benchmark rates will be increased again before the end of the year,” Williams said in a report.
Beijing’s Oct. 19 interest rate hike came after lending by China’s state-owned banks surged in September in defiance of orders to keep credit growth stable.
China’s post-crisis economic growth peaked at an explosive 11.9 percent in the first quarter of this year. It cooled to 9.6 percent in the three months ending in September as Beijing tried to guide the expansion to a more manageable level with curbs on lending and investment.
On Wednesday, an official of the Cabinet’s planning agency was quoted by state media as saying 2010 inflation was likely to exceed 3 percent. It was the first time an official has publicly confirmed such forecasts by private sector analysts.
The latest order was at least the fourth time Beijing has raised reserve levels this year to curb lending that regulators worried might fuel a dangerous bubble in stock and real estate prices. Housing prices have leveled off following double-digit increases early this year but the World Bank warned last week they were likely to start rising again.
Last month, Chinese news reports said the country’s six largest commercial banks were ordered to raise reserves to 17.5 percent but no order was publicly announced. News reports Wednesday said the biggest institutions might have received a confidential order for a 0.5 percent reserve hike on top of the publicly announced industrywide increase.
Chinese savings rates are so high that such modest rises in reserve levels still allow the total amount of money for lending to grow. They are seen instead as a warning to banks to slow loan growth or face more drastic controls.
The World Bank said last week China’s inflation may stay as high as 3.3 percent through next year. It said inflation might normally run as high as 5 percent in developing economies such as China as industries grow rapidly and demand for resources shifts.
People’s Bank of China: http://www.pbc.gov.cn