China did it again on Friday. From AFP/CNA:
China's central bank on Friday said it would raise the amount of money that lenders must keep in reserve as officials step up efforts to contain rising inflation and soaring housing costs.
The People's Bank of China said in a one-line statement on its website that the reserve ratio would be raised by 50 basis points, effective November 29.
This time, stock markets largely managed to shrug it off although commodities were hit again. From Bloomberg:
Commodities sank after China told banks to set aside more reserves in an effort to curb inflation, while the euro gained amid prospects for a financial rescue for Ireland. U.S. stocks advanced after Nike Inc. increased its dividend and earnings at technology companies topped estimates.
The S&P GSCI Index of commodities tumbled 0.9 percent at 4 p.m. in New York to extend a weekly slump to 2.8 percent, its biggest slide since August. The euro climbed against 14 of 16 major peers. The Standard & Poor’s 500 Index rose 0.3 percent to 1,199.73, erasing an earlier 0.6 percent slide. Irish bonds reversed a rally as Allied Irish Banks Plc said its reliance on funding from central banks tripled, underscoring the nation’s need for a financial rescue.
Meanwhile, Jennifer Thomson at FT Alphaville brings us a warning from Société Générale’s Dylan Grice of the risk in China.
So long as China’s credit growth continues at its current pace, aided by the liquidity the Fed is flooding world markets with, and encouraged by artificially low interest rates, the primary risk EMs face today remains that of a bubble.