China set to increase reserves

by Richard Kilner

Story link: China set to increase reserves

The Chinese government yesterday ordered banks to increase their monetary reserves.

The reserve requirement ratio for commerical banks is to be increased by 50 basis points, up to 15%, its highest level since the mid 1980s.

The order is an effort by Beijing to prevent its rapid economic growth slowing by making it less likely for asset bubbles in equity or property to be created.

According to the People’s Bank of China’s website the move was made to bolster liquidity and curb excessive growth of credit.

At present the Chinese economy is in a delicate state, as the authorities attempt to gently ease the ferocious rate of expansion without going too far and causing a serious slowdown.

China’s situation is unlikely to be assisted by the US Federal Reserve’s predicted interest rate cut, and the growing possibility of a recession in the US.