China Again Raises Banks’ Capital Ratios

Barely has the ink dried on the announcements that April’s inflation rate had come in at a higher than expected 5.3% and that China’s trade surplus has surged again, than the central bank has announced that commercial banks’ reserve ratio requirementswill be raised for the eighth time since last October by 50 basis points from May 18. This latest dab of the liquidity sponge will lift the capital reserve ratio to 21% for the largest banks. With capital inflows still running strongly, we doubt that this will be anything like the last round of tightening/sterilization despite the resumption of the central bank’s sales of 3-year bills and a hefty 50 billion yuan ($7.7 billion) auction of 3-month bills.

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