China Monetary Policy


China: Central Bank hikes reserve requirements

January 14, 2011

On 14 January, the People's Bank of China (PBOC) announced that the reserve requirement ratio (RRR) for commercial banks would be raised by 50 basis points to 19.0%, effective 20 January. The move followed on a 25 basis-point interest rate hike on 25 December, which drove the monetary policy rate from 5.56% to 5.81%. The decision to further tighten monetary policy was taken before the final numbers for 2010 inflation were released by the National Bureau of Statistics (NBS) on 20 January. According to the NBS, inflation ended the year at 4.6% and averaged 3.3%, which is well above the target for annual average inflation of 3.0% set for 2010. China's monetary policy has been closely observed since inflationary pressures started to mount in July. The surge in consumer prices can be largely attributed to rising food prices, which have been growing at a double-digit pace. In an attempt to temper price pressures, the government has taken non-conventional measures, such as price controls and the sale of state reserves of grains, in order to guarantee the appropriate supply of these products.

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