China's central bank on Tuesday said it was raising banks' reserve requirements by 0.5% points, effective January 18, in the clearest sign yet that it has begun to tighten monetary policy.
It was the first time that the People's Bank of China adjusted the amount of deposits that commercial banks must keep on reserve since it lowered the ratio in December 2008 as part of its loosening cycle at the time.
The hike in the reserve requirement ratio was sooner than many economists had anticipated and was interpreted as a pre-emptive move against inflation.
This first increase since June 2008 was meant to stabilise loan growth but keep overall policy pro-growth, a Chinese central bank official told Reuters. "Our monetary policy stance is still appropriately loose and the move is intended to use quantitative tools for flexible fine-tuning," an official at the People's Bank of China said.
So, what do experts make of this policy move?
Donald Straszheim, Senior Managing Director & Head of China Research, ISI Group, says, "I wouldn't really be negative about it, it is the right thing to do. China provided so much monetary stimulus in 2009, excessive by anyone's measure, that they need to start pulling it back. The economy is roaring ahead, it is time to start to do this, this is the first step in a transition to tighter policy."
David Gordon, Head of Research, Eurasia Group, too echoes Straszheim's view. "On the one hand, they are very worried about a slow global economic recovery. They are still committed to fully laying out a stimulus plan. But at the same time, they are also quite worried about asset bubbles building up and the potential for inflation. I think they are trying to balance continued stimulus with fine tuning and slowing down access to capital, making it harder to lend."
This, experts say, is a clear signal of what direction the RBI is likely to take in it's monetary policy this month end.
(With agency inputs)
Source: CNBC-TV18
Courtesy moneycontrol.com
Courtesy moneycontrol.com
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