HONG KONG (MarketWatch) — China’s central bank lifted the ratio of required reserve funds for several major lenders by half a percentage point, according to reports Wednesday.
The hike will apply to Bank of Communications, along with China’s four major state lenders — Bank of China Ltd., Agricultural Bank of China Ltd., Industrial & Commercial Bank of China Ltd. and China Construction Bank — the reports said.
Various reports citing unnamed sources said the move will be effective Nov. 15., although the People’s Bank of China offered no immediate formal confirmation.
The move, which requires the named banks to set aside 18% of their assets as reserves, will collectively drain about 180 billion yuan ($27.1 billion) of funds from circulation, according to calculations by Bank of America-Merrill Lynch.
“Factors behind this hike should be quite straightforward: to lock money flowing into China, either in the form of trade surplus or hot money, as on the back of QE2,” said BofA-Merrill Lynch’s Ting Lu in note Wednesday.
He added that inflation expectations are on the rise across major Chinese cities, with “stories of price hikes and QE2 occupying major media.”
Merrill said the impact of the reserve-ratio hike on banks’ bottom lines would be minimal, although worries lingered that the move could be the first of more to come.
“What the market is really concerned with is that Beijing could take draconian measures to cool the economy to contain inflation,” Merrill’s Lu said.
The banking majors traded lower Wednesday in Hong Kong and Shanghai, following the news.
http://www.marketwatch.com/story/china-hikes-reserve-ratio-for-major-banks-2010-11-10Our dollar is getting smashed hopefully it holds parity
