China’s central bank said yesterday it would raise the amount of money banks must keep in reserve, in the latest in a series of moves aimed at bringing high inflation under control.
The reserve requirement ratio will be raised by 50 basis points from February 24, the People’s Bank of China said in a statement – already the second time this year it has announced such a measure.
The move comes less than two weeks after the bank raised interest rates for the third time in four months as Beijing struggles to control soaring prices, which it fears could lead to social unrest.
It also follows the release of data on Tuesday showing consumer prices rose 4.9 per cent last month, well above the government’s targeted ceiling of four percent for the year and up from 4.6 per cent in December.
The figures suggest Beijing’s attempts to cool spending – which has sent prices of everyday goods such as food and fuel soaring – have not yet born fruit.
“It’s indicative of a greater sense of policy urgency out of Beijing in the last few months, in response to this concerning pick-up in inflation,” said Brian Jackson, senior strategist at the Royal Bank of Canada.
“They’re using every policy tool at their disposal, and that’s all they can do. They were a little bit slow to get moving on the monetary policy tools and now they’re playing a bit of catch-up, so that’s what we’re seeing.”
Tuesday’s data showed food costs continued to rise sharply last month, with grain prices up 15.1 per cent, the government said.
The grain supply situation has become an increasing source of official anxiety as an ongoing drought across northern China is threatening the important winter wheat crop.
At the same time, prices of fresh fruit surged 34.8 per cent.
Inflation, particularly related to food, has a history of sparking unrest in China, particularly among the poorer segments of the population.
It has become a hot issue for the government as the economy fizzes along after the global financial crisis and last year overtook Japan as the world’s number two economy after the United States.
Economists blame the huge stimulus measures introduced by Beijing during the downturn for sending prices soaring.
The government is also worried high property prices will lead to a real estate bubble that could burst with calamitous results for China.
Underscoring this concern, the National Bureau of Statistics said yesterday the prices of newly-built homes in most major Chinese cities increased last month from a year ago.
The government has implemented a range of measures to dampen house prices, including the launch of a property tax in Shanghai and the south western municipality of Chongqing.
It has also raised minimum down payments and ordered authorities to rein in real estate prices.
The latest hike brings the average reserve requirement ratio to 19.5 per cent, Dow Jones Newswires reported.