China’s central bank last night raised bank reserve ratios on Tuesday for the ninth time in nine months last October after consumer price inflation jumped to an annual rate of 5.5% in may, the highest for 34 months.
The central bank increased the ratio for China’s biggest banks to 21.5 percent, a record high, locking up funds that could otherwise lent by banks.
For a second month in a row the move to lift the reserve ratio came after the release of the monthly inflation data.
The increase in reserves takes effect next week on Monday, June 20, the central bank said on its website.
The move came after the release of the rest of the economic data for May which showed that economy is not tanking, nor is it in the midst of a mad, bad inflationary boom.
But higher costs are a worry.
May’s inflation rate compares with April’s 5.3% gain, and 5.4% in March, but producer price inflation was unchanged at 6.8% in the month.
The big driver was food prices, up 11.7%, a touch higher than in April.
But non food prices rose an annual 2.9%, which was the highest so far recorded since statistics started for this measure in 2002.
The news helped steady wobbly markets across Asia, Europe and the US after the data was released at midday, Sydney time.
Understandably, that got the analysts and experts warning of another rate rise in China. Instead the asset ratio was raised, even though there was a sharp fall in lending in May by banks.
While interest rates have been boosted four times since last September, the central bank seems to have been uncomfortable lifting those to higher levels.
China’s main official one year lending rate is 6.31% and the one-year deposit rate is 3.25%.
The National Bureau of Statistics said industrial production rose 13.3% from the year-ago period, down from 13.4% in April.
That was the slowest rate of growth in output since last November and chimes with the outcome of the last couple of monthly surveys of manufacturing activity.
But it is not a sign of an economy crunching.
There was a forecast at the weekend (only made public yesterday morning) that inflation could hit 6% in May.
It didn’t, obviously, but some analysts in Beijing are saying it could reach that level this month.
Steel, oil, cement and electricity production all rose in May; in fact steel output was 60.25 million tonnes, up 7.8% on May of last year and just above the 59.03 million tonnes in April.
That’s good news for Australian iron ore exporters. Remember iron ore imports rose fractionally to just over 53 million tonnes in May.
Retail sales for the month were 16.9% above May 2010’s level, but under the 217.1% in the year to April.
Urban investment was up 25.8% in the first five months of the year.
Earlier data showed the highest trade surplus this year and record exports and near record imports (thanks to higher prices than a year ago for many commodities).
Car sales fell in the month, but production was higher.
China’s economy expanded in 2010 by 10.3%, a pace that slowed in the first quarter to 9.7% and is now probably running around 9% annual or a fraction less.
