China's next blow against inflation to come this week?

04/14/2011 11:55 am EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

Hot from the Shanghai rumor mill.

On April 13, the Economic Information Daily reported unidentified sources saying that the People’s Bank of China will raise bank reserve requirements again—by 0.5 percentage points—on April 15 or 22.

China’s central bank last raised reserve requirements on March 25 by 0.5 percentage points to 20%. That was the third increase in reserve requirements in 2011. An increase in reserve requirements forces banks to cut lending since they have to keep more of their capital in reserve against loans. It is the preferred tool of the People’s Bank to fight inflation.

What’s the rumor worth?

The timing makes sense: The People’s Bank last raised its benchmark interest rate on April 5 and the bank frequently follows an interest rate increase with a bump to the reserve requirements.

In addition, China is scheduled to release first quarter GDP and March inflation numbers on April 15. Recently the People’s Bank has raised interest rates or the reserve requirement just before announcing bad news on inflation.  Economists are expecting that March inflation climbed to a 5.5% annual rate.

And Economic Information Daily is a source of reliable leaks. The publication is sponsored by China’s official Xinhua News Agency.

 

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