China hikes reserve requirement ratio by 50 bps

The People's Bank of China (PBOC) announced that it would increase the banks' reserve requirement ratio by 50 basis points (bps) effective November 29 to strengthen liquidity management and control credit distribution. This was the fifth increase in the reserve ratio by the Chinese central bank. China's official reserve requirement ratio for most banks will rise to 18.5% from Nov. 29. The reserve ratio may vary among banks. The move comes after China's consumer price index (CPI) rose 4.4% in October from a year earlier, its fastest pace in two years. The PBOC last raised banks' reserve requirement ratio by half a percentage point on Nov. 10 as part of its efforts to tighten liquidity. This followed a combined interest rate and reserve requirement hike in September.



On Nov. 17, the cabinet announced measures to counter surging prices, including orders to stabilize natural gas prices, crack down on speculation in agricultural goods, ensure food supplies, and use price controls if necessary. Chinese stocks and commodities have tumbled in recent days on speculation that efforts to curb prices will hurt growth, which surpassed Japan for a second consecutive quarter between July and September. The Shanghai Composite Index plunged 5.2% on Nov. 12, the steepest decline in more than a year, and lost 3.2% this week as investors speculated that an interest-rate increase was imminent.