Saturday, 19 March 2011

China raises reserve requirement

China has tightened monetary policy again. AFP/CNA reports:

China's central bank said Friday it will raise the amount of money banks must keep in reserve, in the latest move to rein in lending and bring inflation under control.

The reserve requirement ratio will be raised by 50 basis points, the People's Bank of China said in a brief statement -- the third time this year it has announced such a measure.

The move -- effective from March 25 -- follows three interest rate hikes since late last year as China battles to control soaring prices, which top leaders fear could lead to social unrest.

This action comes even as China's real estate market showed some signs of cooling. Again from AFP/CNA:

China's efforts to cool its red-hot real estate market showed signs of working in February, as government data Friday showed more cities seeing a fall in house prices from the previous month...

The cost of a newly built home in eight of the 70 major cities tracked fell in February from January, the National Bureau of Statistics said. Just three cities had shown a decline in January...

Fifty-six cities saw prices rise in February from the previous month, compared with 60 cities in January, according to the statement.

Prices in Beijing rose 0.4 percent in February from January, slower than the 0.8 percent month-on-month increase in January. Shanghai recorded a 0.9 percent increase for the second straight month.

In contrast to the People's Bank of China, with Japan's nuclear crisis still very grave, the Bank of Japan is maintaining its ultra-easy monetary policy. Reuters reports:

Bank of Japan Governor Masaaki Shirakawa reiterated the central bank's resolve to maintain its ultra-easy monetary policy following Friday's Group of Seven agreement to join in a rare coordinated intervention to restrain soaring yen...

"The Bank of Japan will promote powerful monetary easing and continue providing ample liquidity to ensure market stability," Shirakawa told reporters after Friday's G7 announcement.

In any case, on the whole, events on Friday proved somewhat supportive of financial markets. From Bloomberg:

Stocks rose, sending the MSCI World Index to its best two-day rally of the year, as the Federal Reserve allowed some U.S. banks to boost dividends and Libya called a cease-fire. The yen slid as central banks weakened the currency to help Japan recover from its worst earthquake.

The MSCI gauge of stocks in developed markets gained 0.7 percent as of 4 p.m. in New York and climbed 2.3 percent in the last two days. The Standard & Poor’s 500 Index advanced 0.4 percent after Japan’s Nikkei 225 Stock Average closed up 2.7 percent. Crude slipped 0.4 percent to $101.07 a barrel, erasing a 2.2 percent gain. The yen weakened against all 16 most-traded peers, depreciating 2.2 percent to 80.69 versus the dollar. Ten- year Treasury yields increased 1 basis point to 3.27 percent.

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