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China Tells Banks to Set Aside Bigger Reserves to Cool Economy
Real estate news By Nipa Piboontanasawat
October 13, 2007 04:56 EDT
China ordered banks to set aside more money as reserves for the eighth time this year to cool speculation in stocks and real estate and curb the fastest inflation in 10 years. Lenders must park 13 percent of deposits as reserves from Oct. 25, up from 12.5 percent, the People's Bank of China said today on its Web site. The required ratio is the highest in almost a decade. Seven increases in the reserve requirement and five interest-rate rises this year probably failed to stop the economy expanding faster than 11 percent for a third quarter, a government report may show next week. Surging exports have pumped money into the world's fastest-growing major economy, fanning inflation and fueling a boom in shares and real estate.
China's consumer prices surged 6.5 percent in August from a year earlier, the biggest jump since December 1996. The rate breached the government's annual 3 percent target for a fourth consecutive month, as food costs soared. Inflation was a factor in protests that led to the Tiananmen Square crackdown in 1989. China's trade surplus jumped 56 percent in September, the customs bureau said yesterday, taking it to $185.65 billion for the first nine months of the year, more than the $177.5 billion for all of last year.
Money supply is surging because the government wants to hold down the yuan, forcing the central bank to sell the currency and pump cash into the banking system. Some of that money is finding its way into stocks, pushing the benchmark CSI 300 Index up 181 percent this year. Money supply rose 18.5 percent in September. The economy, the world's fourth largest, probably grew 11.5 percent in the third quarter, the government may announce next week, according to the median estimate of 14 economists surveyed by Bloomberg News. The date for the release of the gross domestic product report hasn't been set. Of 20,000 households surveyed in a central bank quarterly report released Sept. 20, a record 61.3 percent said they expect inflation to quicken in the fourth quarter.
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