Friday, November 19, 2010

China Sends Global Stocks Lower With Monetary Tightening

BEIJING, Nov 19 (Reuters) - China ordered lenders on Friday to lock up more of their money with the central bank for the second time in two weeks, stepping up its battle to pull excess cash out of the economy before inflation has a chance to take off.
The People's Bank of China said that it would increase banks' required reserves by 50 basis points, its fifth such announcement this year. Including a temporary increase, the move takes required reserve ratios (RRR) to 18.5 percent for big banks, a record high.
The increase was intended "to strengthen liquidity management and appropriately control money and credit issuance", the central bank said in a statement on its website (www.pbc.gov.cn).
The move was not a surprise and, in fact, could be something of a relief for investors who had expected worse.
"It suggests China is intent to manage price pressures through withdrawing liquidity from the system," said Dongming Xie, China economist at OCBC Bank in Singapore. "However, it also suggests that China is being cautious about aggressive monetary tightening."