Recent Hike In Chinese Reserve Ratio Signals Stringent Policy Decisions Ahead

Monday, December 10, 2007 1:16:12 AM - Stringent preemptive measures were very much in the cards, after the Chinese top policy makers said last week that the government was shifting its monetary policy stance from `prudent` to `tight” to cool an overheating Chinese economy.
Most analysts therefore, believe that the weekend decision by the Peoples Bank of China or PBOC to raise the Reserve requirement ratio or RRR to 14.5% is just the beginning of more such announcements to follow.
The DBS research group said Monday that given the strong economic data, it is likely that POBC would raise the one-year lending rate by 27bps to 7.56% and lift the one-year deposit rate by 36bps to 4.23% before the year-end.
`We continue to expect two hikes of the same magnitude in the first quarter and the second quarter next year,` the Research group said. According to the Group, the persistent cyclical strength of China should warrant a stronger exchange rate and tighter monetary policy.
Instead of the usual 50bps jump on the reserve requirement ratio seen during the course of 2007, the PBOC raised it by 100bps on last Saturday. The move reflects the central bank`s determination to contain credit growth and fight heightening inflationary risks, which persists despite raising RRR by 50bps each nine times earlier this year. The central bank also raised interest rates five times during the same period.
According to DBS research group, the acceleration of monetary tightening suggests that the authorities are not counting on a slower US economy to cool the Chinese economy significantly.
read more:Recent Hike In Chinese Reserve Ratio Signals Stringent Policy Decisions Ahead

Profitable Expert Advisor