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Chinese liquidity

The FT’s Lex column looks at Chinese liquidity.

Chinese liquidity[FT - subscription required]

China surprised the market at the weekend, lifting the ratio of reserves that banks must hold by 100 basis points. This is the fifth rise of the year, as well as the biggest, and brings the ratio up to 17.5 per cent.

What does Beijing know that nobody else does? Inflation numbers, due out on Thursday, look like a red herring. Food price indices point to a slight deceleration in consumer price inflation; besides, impounding an additional bn-bn in bank vaults does little to curb spiralling prices when loan growth is steaming along at about 15 per cent year-on-year.

The article goes on to talk about the fear of hot money inflows estimated to be in the region of bn in April alone.

Lex concludes that such measures may not be sufficient and that capital controls are a possibility.