Chinese Futile Inflationary Response Intensifies As PBOC Hikes RRR By 50 bps, Again

Tyler Durden's picture

China continues to joust with windmills as its latest attempt to counter inflation, a 50 bps RRR hike, is now history, and will be just as successful as all of its previous RRR, and interest rate hikes at rebuffing gentle Ben's attempt at genociding a few hundred million additional serfs. Luckily for now the "silver for rice" trade continues, keeping a lid on rice prices. Indicatively, as we showed previously, neither interest rate hikes nor RRR have any impact on the Chinese market whatsoever, confirming that the only source of global liquidity that matters resides in the Marriner Eccles building.

A little more from Bloomberg:

China’s central bank raised reserve requirements for lenders 10 days after boosting interest rates as Premier Wen Jiabao tackles accelerating inflation and the risk of asset bubbles in the fastest-growing major economy.

Reserve ratios will increase half a percentage point starting Feb. 24, the People’s Bank of China said on its website today in a one-sentence statement. The move will lock up about 356 billion yuan ($54 billion), Nomura Holdings Inc. said.

Lending surged in January and inflation quickened as new home prices rose in all but two of 70 cities monitored by the government, official reports showed this week. Central bank Governor Zhou Xiaochuan said policy makers may also use means “including rates and currency” to tackle inflation, in an interview in Paris after the reserve-ratio announcement.

China has a profound liquidity and inflation problem that is, even with this latest tightening, getting further ahead of policy makers,” said Glenn Maguire, chief Asia economist at Societe Generale SA in Hong Kong.

“This is just the start from China and they will continuing tightening lending and raising interest rates, doing their utmost to contain this,” saidPhilippe Gijsels, the Brussels-based head of research at BNP Paribas Fortis Global Markets. “If the Chinese start to take out the liquidity that’s been so important, it’s got the potential to be a disturbance for the world’s stock markets.”

Reserve ratios stood at 19 percent for the biggest banks before the move, excluding any extra requirements for individual lenders not publicly announced. The People’s Bank of China has said that it may use bank-specific requirements this year to control credit growth.