On April 16, commercial banks in China will have a 0.5% higher reserve requirement at 10.5% and smaller lenders will have a reserve ratio of 11%. This is the sixth reserve increase by the People's Bank of China in less than a year. Analysts reportedly estimate it will remove about 170 billion yuan (~$22 billion) in liquidity from the banking system. This move by the PBoC comes after a 0.27% hike last month to the bank's benchmark lending and deposit interest rates, which are now 6.39% and 2.79%, respectively and the highest in almost eight years. In a statement, the PBoC commented it "will continue with prudent monetary policy, using a policy combination to enhance bank liquidity management, maintain the proper level of liquidity, prevent the excessively fast growth of money and credit (and) guide financial institutions to improve their credit structures and promote good and fast economic growth." The Chinese economy achieved its fastest growth in more than a decade last year and also recorded its largest trade surplus ever at $177.5 billion.
Sources: Bloomberg, Forbes AFX newswire, Reuters
Commentary: China as an Economic Superpower: 'Watch Out Below' • China Criticizes U.S. Anti-Subisidy Tariffs; Dollar Weakens • The Shanghai Stock Index Bubble
Stocks/ETFs to watch: iShares Trust FTSE-Xinhua China 25 Index Fund (NYSEARCA:FXI), PowerShares Golden Dragon Halter USX China Portfolio (NASDAQ:PGJ). Bonds: iShares Lehman 1-3 YR Treasury Bond (NYSEARCA:SHY), iShares Lehman 7-10 YR Treasury Bond (NYSEARCA:IEF), iShares Lehman 20+ YR Treasury Bond (NYSEARCA:TLT). Currency: PowerShares DB G10 Currency Harvest Fund (NYSEARCA:DBV), Euro Currency Trust (NYSEARCA:FXE)
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