China may tighten cash supply

Fears rising home prices are fueling inflation.

The People's Bank of China is concerned that abundant credit could stoke higher inflation following a report showing house prices rising the most in nearly three years. Double-digit increases were reported in major cities. Reuters reported that PBOC may tighten cash conditions in the financial system to address inflation risks. The central bank refrained from supplying cash to money markets for the second day running yesterday. If it also withholds cash at its next money market operation tomorrow (Thursday), the effect will be a net weekly reduction of US$9.5 billion, the second largest since February. Song Guoqing, an academic member of the central bank's monetary policy committee, said policy fine-tuning will rely mainly on open market operations. He said he cannot see any possibility of changing interest rates or bank reserve ratios. Policymakers are reluctant to use more potent instruments to control imbalances in case they also blunt a modest economic recovery ahead of a crucial policy meeting next month. China's house prices in September rose 9.1% on-year, the sharpest rise since January 2011, said Reuters.