Chinese policy makers may be divided over the pace of credit growth with inflation picking up even as there are “downside” risks to economic growth, according to Goldman Sachs Group Inc.
China’s central bank has raised the reserve requirements for six banks for a two-month period, Goldman analysts wrote in a note today after Reuters reported such a decision yesterday, citing four people it didn’t identify. Such a “partial” increase doesn’t require approval of the State Council, China’s cabinet, according to Goldman.
The step comes as policy makers attempt to rein in the property market to avert a bubble and keep housing affordable. While the government has tightened mortgage-lending rules, broader credit growth so far this year is on pace to exceed officials’ 2010 target. Both the China Banking Regulatory Commission and People’s Bank of China guide bank lending.
“The required reserve ratio hike is used as a clear signal to commercial banks that the central bank is willing to take actions to control lending as necessary even ‘if’ the CBRC is taking a back seat in credit controls,” Goldman analysts Yu Song and Helen Qiao in Hong Kong wrote in today’s report. The fact that the increase doesn’t apply to all banks and wasn’t announced publicly “may also reflect the significant uncertainties facing the economy and disagreements among the views of policy makers,” they wrote.
Ratio Increase
The ratio will increase 50 basis points for the four largest banks and China Minsheng Banking Corp. and China Merchants Bank Co., Goldman said. Bank of China Ltd., Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. and Agricultural Bank of China Ltd. are the nation’s top four banks.
The current reserve ratio level is 17 percent for the biggest banks and 15 percent for smaller ones. The People’s Bank of China and the six banks declined to comment yesterday.
Chinese banks may have extended 500 billion yuan ($75 billion) in new local-currency loans last month, a Bloomberg News survey of 18 economists shows. That would compare with 545 billion yuan in August. M2, the broadest measure of money supply, may have climbed 18.9 percent in September from a year earlier, according to economists’ median estimate.
Loan Guidance
China’s central bank has refrained from following counterparts across Asia in raising interest rates this year as the global economy pulled out of a recession and trade recovered. Policy makers have instead relied on raising the reserve ratio and using loan guidance to banks to tamp down credit growth after a record 9.59 trillion yuan tally in 2009. Regulators targeted 7.5 trillion yuan for new loans this year.
China is in no “hurry” to reduce consumer-price inflation and will focus on pushing down housing prices to strengthen the economic recovery, PBOC Governor Zhou Xiaochuan said in Washington on Oct. 10. It may take two years for the inflation rate to fall below 3 percent, from a 22-month high of 3.5 percent in August, he said.
“Since the fiscal and monetary expansion has already got into effect, we cannot be very hurry to get inflation under control,” said Zhou, speaking in English. “We have a medium-term plan. I hope this medium-term plan is credible.”