China’s foreign exchange reserves surged to a record level in December and new loans exceeded forecasts, raising stakes in Premier Wen Jiabao’s campaign to avert asset-price bubbles.
In comparison, India’s forex reserves jumped $741 million to $284.26 billion during the week ended January 8, according to the Reserve Bank of India.
Reserves in China rose 23 per cent to $2.4 trillion, the world’s largest, according to a People’s Bank of China (PBoC) statement on its website yesterday. Banks extended 379.8 billion yuan ($55.6 billion) of new loans, taking the annual total to an unprecedented 9.59 trillion yuan, PBoC reported.
Accelerating inflation might encourage the Chinese government to end the 18-month-old yuan peg to the dollar and allow a 3 per cent appreciation by year-end, said Isaac Meng, senior economist at BNP Paribas SA in Beijing.
Along with a stronger yuan, policy makers would have to follow up on their decision this week to raise the share of deposits banks must set aside as reserves, Meng said. The risk: surging lending growth and an influx of speculative capital from abroad may destabilise the world’s third-largest economy with bubbles from property to stock markets.
Wen’s cabinet pledged last week that regulators would step up monitoring of speculative funds after the biggest jump in property prices in 18 months in December.