Tuesday, June 14, 2011

People's Bank of China Raises Reserve Requirement 50bps to 21.5%

The People's Bank of China raised the required reserve ratio by 50 basis points, taking the average rate to 21.5% for large banks (and 19.5% for smaller banks), effective 20 June 2011.  The Bank said in a separate statment: "The Chinese economy is suffering some long-term and short-term problems that are interweaved, and co-existing systemic and structural problems,".  The Bank also noted: "The loose global monetary conditions have pushed up inflation expectations and the prices of commodities which thus exacerbated China's imported inflationary pressure,".

The People's Bank of China also raised the reserve requirements by 50 basis points in May this year to 21%.  China reported inflation of 5.5% in May, up slightly from 5.3% in April, and 5.4% in March this year, and above the government's target of 4%.  The move is expected to drain around 300-400 billion Yuan from the banking system.  The People's Bank of China last raised the benchmark interest rate 25bps on the 5th of April this year.



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