In order to dissipate the heat out of the investment boom in China the country has decided to raise the amount of money which the banks are required to hold in reserves. This decision has been taken for the fourth time in this year in order to avoid any financial crisis in the country. This decision follows increasing interest rate in autos, real estate and other sectors but this step of the government has met repeated success in bringing to a halt the growth in investment in the country.
Over the past year China has shot up its bank reserve ratio seven times and every time there had been an increase by 0.5 percentage point. In order to prevent any financial crisis the government is trying to contain the boom so that the country does not end up in a debt crisis or inflation trap. Even the BOP problem of China is a cause of worry since it had led to increasing liquidity but I feel that the government needs to introduce some tough measures if it doesn’t want a financial turmoil in the country.
Via: iht
