Sunday, April 17, 2011

China Hikes Bank Reserve Requirement, Again

For the fourth time this year, China increased in the reserve requiremnet for bank deposits.

China's central bank said Sunday it will raise banks' reserve requirement ratio by 0.5 percentage point, effective from Thursday. The PBOC raised the reserve-requirement ratio six times last year and has raised benchmark lending and deposit rates four times since October. The previous reserve-ratio increase took effect March 25, and the last interest-rate increase took effect April 6.

China's official reserve-requirement ratio for most banks will be 20.5% after the latest increase takes effect, based on the PBOC's public announcements. However, according to WSJ, the central bank is now forcing some banks that lend too aggressively to hold even higher levels of reserves.

The steady inching up of reserve requirements, and the PBOC interest rate, will eventually result in a reversal in the upward direction of the money manipulated boom in China. Given the enormous money that has been printed, the downside is likely to be very hard.

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