Tuesday, January 12, 2010

China raises reserve ratios, increases short term interest rates

The tightening has begun in China, just a few days after my previous post on bubbling lending growth in China.

Jan 11, 2010:  China raises reserve ratio by 0.5%.  (WSJ) This may not seem like a big idea, but by reducing the percentage of deposits available for lending you automatically slows down the pace of lending growth.  The more I think about this, the more I prefer it to just raising short term interest rates (which they also did a few days ago as well) which can hamper currency exchange rates and encourage carry trade lending.   Considering China's relatively undeveloped financial markets this method works better than if it was tried in America.

We'll see if this is just public posturing to put people on notice or really a reduction in the growth of lending shortly.  Watch this space. I'll keep you informed.

ht: Calculated Risk

No comments:

Post a Comment