China ordered banks to set aside more deposits as reserves for the third time this year to cool a record credit expansion that has sparked the risk of asset bubbles in the world's third-largest economy. The reserve requirement will increase 50 basis points effective May 10, the People's Bank of China said on its Web site today. The current level is 16.5 percent for the biggest banks and 14.5 percent for smaller ones. Today's move leaves benchmark interest rates unchanged, a strategy that reflects policy makers' preference for further evidence of a sustained global economic recovery before imposing higher borrowing costs. PBOC Deputy Governor Zhu Min said March 25 that rate rises were a "heavy-duty weapon" and alternative measures were working well. "They want to contain explosive growth in credit but they're cautious given the ongoing external uncertainties," David Cohen, an economist with Action Economics in Singapore, said before today's announcement. "When inflation reaches 3 percent that'll catch their attention -- and potentially could trigger a rate hike." China's consumer prices rose 2.7 percent in February, the most in 16 months. The benchmark one-year lending rate remains at 5.31 percent. The one-year deposit rate is 2.25 percent. Without stronger measures to rein in liquidity and stem asset-price gains, some economists may keep warning about a bubble that could destabilize the nation's economy. Citigroup Inc. hedge fund manager Jim Chanos and Harvard University's Kenneth Rogoff have highlighted the danger of a boom and bust in coming years. Slowing Credit Premier Wen Jiabao's government is aiming to slow credit growth to 7.5 trillion yuan ($1.4 trillion) this year from a record 9.59 trillion yuan in 2009. In the first two months of this year, Chinese banks lent about 28 percent of the government's target for 2010. Zhu, the PBOC deputy governor, said at a March 25 conference in Hong Kong that lending gains would see a "slowdown" in March from the previous month and that a moderation would be "healthy." "We are very careful on the interest rate, because it is a heavy-duty weapon," Zhu said at the Hong Kong gathering. PBOC Governor Zhou Xiaochuan also said in a March 23 interview that "extraordinary stimulus measures can gradually fade out" only after officials are "very certain" about a global economic recovery. Geithner Meeting U.S. Treasury Secretary Timothy F. Geithner's unscheduled meeting with Chinese Vice Premier Wang Qishan in Beijing on April 8 fanned speculation that the yuan may strengthen after being held at about 6.83 per dollar since July 2008. American lawmakers have stepped up calls for an end to what they label an unfair subsidy. Inflows of so-called hot money from abroad, partly attracted by expectations that the yuan will gain, are complicating the central bank's efforts to soak up liquidity and reduce the risk that the economy will overheat. The Shanghai Composite Index of stocks has fallen 12 percent this year in part on concern that a stimulus rollback will slow growth and profits. China has yet to follow Australia and Malaysia as Group of 20 members who have boosted borrowing costs this year. Higher rates would widen the gap with central banks in the U.S., Europe and Japan, a shift that may stoke pressure for exchange-rate appreciation. Economic Growth China's central bank is acting today after data in recent weeks indicated economic growth is accelerating. A survey of purchasing managers released April 1 showed manufacturing expanded at a faster pace in March than the previous month. The economy grew 10.7 percent in the fourth quarter of 2009, the most in two years. The nation is poised to overtake Japan as the world's second-largest economy this year, when the Organization for Economic Cooperation and Development predicts it will contribute a third of global growth. It has surpassed the U.S. as the top auto market and Germany as No.1 exporter. Exports rebounded and industrial production grew by the most in five years in January and February, cementing a recovery at Chinese factories. Still, officials cautioned that comparisons were flattered by depressed year-earlier levels. The consumer price inflation rate was higher in February than returns on household savings, threatening to spur purchases of property and stocks and fuel asset-price pressures. China appears heading for an "asset boom, bubble and bust" that may take three years to play out and probably won't be thwarted by tighter economic policy, Citigroup economists said in a March report. It may take as long as two years for the bubble to form and at least three years for it to burst, London- based Willem Buiter, a former Bank of England policy maker, and Shen Minggao in Hong Kong estimated. The lending boom has spurred profit gains at the nation's banks. Industrial & Commercial Bank of China Ltd. on March 25 reported its fastest profit growth in seven quarters, with net income jumping 58 percent to 28.6 billion yuan in the final three months of 2009 from a year earlier. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints. Nothing in this article is, or should be construed as, investment advice. |
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http://in.groups.yahoo.com/group/investwise/
INVESTMENTS IN INDIA
We are low-risk, long-term investors.
Stocks, mutual funds and the entire investment gamut. Only financing/investment avenues in India will be discussed.
For any assistance, questions or improvement ideas, contact investwise-owner@yahoogroups.co.in
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NEW! ==== Check "Tracklist" in Links and Files sections for Investment Ideas.
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