In an unexpected move, the People's Bank of China temporarily raised reserve requirements for six large commercial banks to control liquidity and stabilize the economy that has seen greater inflows from abroad.
The new rules will increase the ratio by 50 basis points and will remain in place for two months from their current level of 17 percent for the largest banks and 15 percent for smaller institutions, according to a Reuters report.
Analysts say the move is aimed at maintaining the current momentum in the economy as the government has taken measures to control the real estate market in order to avoid asset bubbles. There are no speculations about an increase in interest rates in the short term but the Yuan may see a surge, according to some experts with insider information about the Chinese economy.
The decision had a positive impact on the Shanghai Composite Index as it closed at 2.5 percent higher today, after seeing up to 3.1 percent gains on Oct. 8. Investors are rushing to invest in the Chinese economy as the Yuan's appreciating values have boosted their confidence.
The central bank's governor Zhou Xiaochuan said Oct. 8 in Washington that the existing monetary policy tools had adequate impacts despite the fact that inflation reached 3.5 percent in August, the highest in 22 months. He hinted that China might keep rates at crisis lows; the current one-year lending rate is estimated to be around 5.31 percent.
The central bank has not yet released the lending data and estimates of the country's foreign exchange reserves for the month of September.
