The People's Bank of China, the central bank, on May 18 increased the reserve requirement ratio to siphon excess liquidity out of the market. It was the fifth such hike this year after six increases in 2010.
Commercial banks will be required to set aside an additional 0.5 percent of their deposits in reserve, locking around 370 billion yuan ($57 billion) that they could otherwise lend.
China's inflation showed signs of easing, with the consumer price index dipping slightly to 5.3 percent in April from a 32-month record of 5.4 percent in March. But it was still higher above the government-set target of 4 percent for the entire year.
Inflation pressure remains strong so a policy move signaling the central bank's determination to control inflation is still needed, said Wang Qing, Morgan Stanley's chief China economist in Hong Kong.
"Controlling inflation will definitely entail a slowdown in economic growth, but that doesn't indicate there will be a hard landing," he said. "That's why the policy priority at the moment is still to control inflation."
Liu Yuhui, a senior researcher with the Institute of Finance and Banking at the Chinese Academy of Social Sciences, said small and medium-sized enterprises may face more intense difficulties in obtaining bank credit.
One solution for these enterprises is to tap into capital markets like bonds and stocks, he said. |