The hot topic this week was about cooling off. For the third time this year, China’s central bank raised the reserve requirement. In a further move to choke off runaway lending, China’s big banks have been told they must now hold 17% of their deposits at the central bank. That likely won’t be the end of the tightening. HSBC’s economist Qu Hongbin estimates that with loan growth up 22% year-on-year (versus a 17% target) there will be a 100-150bp of further hikes, taking the reserve requirement as high as 18.5% in coming quarters.
But Tom Holland, a columnist with the South China Morning Post, doubts it will make a difference. He says that because the banks are “up to their ears in surplus liquidity” reserve requirement hikes have “little or no effect on how much money the mainland’s banks can lend.”
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