(Adds economist’s comment in third paragraph.)
May 12 (Bloomberg) -- China raised banks’ reserve requirements for the fifth time this year to restrain prices, adding to the likelihood that growth will slow in the world’s second-biggest economy.Reserve ratios will increase 0.5 percentage point from May 18, the People’s Bank of China said on its website today. The requirements currently stand at 20.5 percent for the biggest lenders.Premier Wen Jiabao aims to tame inflation that exceeded 5 percent for a second month in April without choking off growth that peaked at 11.9 percent during last year. Economic activity is moderating and scarcer credit and a softening real-estate market will drag on investment, a New York-based research organization, The Conference Board, said last month.“Given the mounting inflationary pressure and still relatively strong economic growth, we expect inflation control to remain the top policy priority,” Peng Wensheng, a Hong Kong-based economist for China International Capital Corp. Ltd., said before today’s announcement.A Chinese manufacturing index fell in April from March, signaling the economy may cool after expanding an annual 9.7 percent in the first quarter.Stronger YuanOfficials have accelerated gains in the yuan, which broke 6.5 per dollar for the first time since 1993 on April 29 as the U.S. currency slid. A stronger yuan helps to reduce import costs.The ruling Communist Party aims to prevent public discontent at increases in food and housing costs from fueling unrest.Unilever, the world’s second-largest consumer-goods maker, said March 31 that it was among companies to have postponed price increases at the government’s request. Officials later announced that the company will be fined for telling the media about plans to increase prices.Higher commodity costs, inflows of speculative capital, and the extra cash from a stimulus program started in late 2008 have added to inflation risks. The nation’s world-record foreign-exchange reserves exceeded $3 trillion for the first time in March.Consumer prices jumped 5.4 percent in March, the most since July 2008. In April, the gain was 5.3 percent. Besides raising interest rates and lenders’ reserve requirements, the government has guided banks to reduce levels of new lending.--Editors: Paul Panckhurst, Ken McCallum
To contact Bloomberg News staff for this story: Paul Panckhurst in Hong Kong at ppanckhurst@bloomberg.net
To contact the editor responsible for this story: Paul Panckhurst in Hong Kong at ppanckhurst@bloomberg.net
