Apr. 20 – The People’s Bank of China announced another 0.5 percent lift in the reserve requirement ratio (RRR) to be implemented on April 21, breaking many economists’ prediction that China’s RRR has touched its ceiling and tightening monetary policy has come to an end.
This marks the fourth time this year that the PBC has raised the RRR and shows that China is still under heavy inflationary pressure, despite its various measures to control food and property prices. Newly released statistics show that March’s consumer price index (CPI) increased by 5.4 percent, reaching a 32-month high. Zhou Wangjun, an official of China’s Development and Reform Commission predicted that the CPI will still stay high during the next quarter.
The record high RRR (20.5 percent) may add more pressure to some Chinese banks whose deposit-loan ratio has already been approaching the original 20 percent RRR wall. According to related reports, another RMB360 billion-bank deposit will be locked up for meeting the new reserve requirement. Banks’ shrinking loan issuance may have a negative impact on small and medium sized enterprises and slow down the country’s economic development.
Concerns over inflation in emerging economies and a deficit crisis in the West have supported gold and other heavy metals this year, areas of investment that have long been considered the safest hedge against inflation. The price of gold futures has been marching upwards for six consecutive trading days since April 12, and just exceeded US$1,500 per ounce this afternoon.
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