Yesterday, after trading ended, the People's Bank of China announced another increase in banks' required reserve ratio. The amount of reserves that banks must set aside was increased by 0.5% to 15.5%. This is another step in China's fight against inflation. The move is not a surprise and, going forward, it will be interesting to see whether China also raises interest rates. Higher interest rates could spell trouble for the property market and also put more pressure on the Renminbi to rise. Therefore, analysts have, so far, been more confident that the required reserve ratio would be increased than interest rates.
Previous articles on inflation:
Another strong inflation reading, but mostly in food
National People’s Congress: focus is on fighting inflation
Previous articles on China’s monetary policy:
China backing up its monetary policy tightening
China moves monetary policy to “tight” as US loosens