The pace of Chinese tightening measures seems to have picked up.
After successive regulatory measures aimed at restricting property speculation which were announced earlier this year, the central bank is now hiking the reserve requirement ratio for banks.
The People’s Bank of China said in a notice on its website that the reserve requirement ratio would be hiked by 50 basis points from May 10 — the third reported increase since the beginning of the year.
The ratio is the minimum amount of money that banks must keep in reserve and not use for lending or other purposes.
The central bank said rural credit cooperatives and banks would not be required to make the increase for the time being.
Aside from raising bank reserve ratios, it has also increased interest rates on benchmark three-month and one-year Treasury bills.
This basically means that banks need to keep more capital on hand relative to the size of their deposit base, and thus relative to the size of their loan portfolio. Thus it should help reign in overall lending growth in the financial system.
Given that Chinese banks reported record profits just a few days back, the government could be now confident that banks can handle higher reserve requirements.