China Raises Bank Reserve Requirement Again To Slow Growth

The central bank in China said Friday that it is raising the share of deposits that banks are required to keep in reserve in an effort to temper the rapid growth in credit to avoid potential inflation and asset bubbles.

According to the People's Bank of China the reserve-requirement ratio for banks will be hiked by half of a percentage point starting February 25, marking the second increase this year. The standard for what major banks will be 16.5 percent of deposits kept on reserve.

The central bank did note that the rate could vary for each bank as the authorities are attempting to reign in the lending by banks after previously failed attempts.

The credit boom in China has been a tent pole for the global economic recovery, but with the hikes by the Chinese banks investors may become timid about the country’s ability to maintain balance in its financial system.

Shortly after the announcement, the U.S. dollar rose and oil prices dropped in European trading.

The move comes following the announcement from China that the consumer-price inflation moderated to 1.5 percent in January from 1.9 percent in the prior month, but economists are expecting the rate to pick up steam in the coming months. In addition, authorities are worried over the 9.5 percent increase in property prices over the past 12 months.

Economists expect the central bank in China to continue to raise the reserve requirements this year, while also taking measures like increasing lending rates or allowing the appreciation of the nation’s currency.

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