China's Central Bank to Strengthen Liquidity Management


"Banks ordered to hold more in reserves twice this month to curb inflation, now at a two-year high."

China's central bank said it will strengthen liquidity management and "normalize" monetary conditions after having twice this month ordered banks to hold more in reserves to curb inflation that's at a two-year high.

The nation will use quantitative and price tools to manage liquidity, Hu Xiaolian, a deputy governor of the People's Bank of China, said in a statement posted to the central bank's website yesterday. China will also control the pace of bank lending for the remainder of this year as it will be difficult to stay within the government's 7.5 trillion yuan ($1.13 billion) target for new loans in 2010, she said.

Premier Wen Jiabao's government has raised interest rates, increased the reserve requirement for banks and pledged to use price controls at part of efforts to rein in inflation that surged last month to 4.4%. Analysts at nine banks surveyed by Bloomberg News last week said they expected China to raise interest rates a second time this year.

"Beijing's top concern is excess liquidity flooding the economy and fueling asset price inflation, so the policy stance is moving from accommodative to prudent, actually, more tightening," Jinny Yan, an economist at Standard Chartered Plc in Shanghai, said before yesterday's central bank statement.

The 21st Century Business Herald reported Nov. 23 that China's banks had already extended 600 billion yuan of loans this month. That would put China's total loans at the government's annual target of 7.5 trillion yuan in new lending by the end of November.

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