May 3 (Bloomberg) -- China’s third increase of bank reserve ratios this year left benchmark interest rates and the yuan’s peg to the dollar unchanged, risking the need for more concerted effort to contain property prices and inflation in coming months.
The requirement will increase 50 basis points effective May 10, the People’s Bank of China said on its Web site yesterday. The current level is 16.5 percent for the biggest banks and 14.5 percent for smaller ones.
The latest move adds to a government crackdown on property speculation after record price increases in March and came on a holiday weekend, with Chinese markets shut today. Within an hour of the central bank announcement, Finance Minister Xie Xuren said that officials remained committed to expansionary policies to cement the nation’s recovery.
“Beijing still prefers to fine-tune credit conditions and the property market rather than using blunter instruments that impact the entire economy,” said Brian Jackson, a Hong Kong- based strategist at Royal Bank of Canada. The danger is that the approach “will not be enough to keep these price pressures under control, which would then force policy makers to tighten more aggressively later on.”
Removing Cash
Yesterday’s decision will remove 300 billion yuan ($44 billion) from the financial system and may push back an interest-rate increase until “early June,” according to Deutsche Bank AG.
(*POOF* illusory credit disappeared, magic much?)
Continue reading - China Bank Reserve-Ratio Rise May Prove Insufficient
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