People's Bank Of China Raises Reserve Requirement Ratio By 50 Basis Points

The People’s Bank of China just announced that it would raise the reserve requirement ratio for commercial banks by 50 basis points, effective on 20 June.  That will bring the reserve requirement ratio to 21.5%.  The previous policy action was a 50 bp hike in reserve requirement ratio, announced on 12 May.  This comes after the latest inflation data showing the acceleration of inflation in May. The headline inflation reached 5.5%, 34-month high. 

As mentioned earlier, the Chinese policy makers are now in a dilemma, facing a consistently high inflation on one hand, and a slowing growth on the other hand.  The fact that the People’s Bank of China has paused for a month now demonstrated the caution the policy makers have over balancing prices and growth.  However, the sticky inflation and property prices show that it is still a bit early to call for monetary easing, although the pace of tightening may be slowed down in the future.  This latest hike also highlight the government’s priority now remains on fighting inflation.

I maintain that more tightening may be possible unless we see noticeable easing in inflationary pressure and property prices, or the slowdown in the West is proved to be more sustained.

This article originally appeared here: People’s Bank Of China Raises Reserve Requirement Ratio By 50 Basis Points
Also sprach Analyst – World & China Economy, Global Finance, Real Estate

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