China just yesterday increased the reserve requirement for six major banks by 50 basis points to 17.5%, in the first reserve ratio increase since May according to Reuters. It’s the latest move by the Chinese government to try and control the expansion of credit in the economy and inflation.
What’s peculiar about the latest move, however, is that it wasn’t publicly announced and only applies to a few banks. It’s the kind of move which doesn’t require approval from China’s cabinet, and thus Goldman Sachs has suggested that the limited nature of the move implies that Chinese officials could be divided as to how best to control the country’s financial system:
“The required reserve ratio hike is used as a clear signal to commercial banks that the central bank is willing to take actions to control lending as necessary even ‘if’ the CBRC is taking a back seat in credit controls,” Goldman analysts Yu Song and Helen Qiao in Hong Kong wrote in today’s report. The fact that the increase doesn’t apply to all banks and wasn’t announced publicly “may also reflect the significant uncertainties facing the economy and disagreements among the views of policy makers,” they wrote.
According to Bloomberg the six banks to which the new reserve ratios will apply are Bank of China, Industrial & Commercial Bank of China, China Construction Bank, Agricultural Bank of China, China Minsheng Banking, and China Merchants Bank, though there still hasn’t been any public announcement of the new measures.