The People's Bank of China (PBOC), or the central bank,
announced on Friday that it is to raise the deposit reserve ratio
of banks, excluding rural cooperative banks and credit
cooperatives, by 0.5 percentage points from Nov. 15.
It will be the third rise in the deposit reserve ratio this
year, or 1.5 percentage points in total.
The move is aimed at tightening the banks' liquidity management,
ensuring the stable growth of money supply and credit, and
maintaining the sustained, coordinated and healthy development of
the economy.
"It is the way for the government to squeeze credit and relieve
the pressure on currency," said Wang Xiaoguang, an economist at the
National Development and Reform Commission.
The hike will bring the reserves that most banks are required to
deposit with the central bank to nine percent.
The central bank raised the bank deposit reserve ratio by the
same margin of 0.5 percentage points in August and July.
But Wang also said the balance of bank loans was growing at a
relatively high rate. "Monetary stringency is still needed. The
macro-control measures implemented from the beginning of this year
have shown some effect on money supply, but it's not going well
with the credit."
The previous two hikes helped take around 300 billion yuan
(US$38 billion) out of the banking system.
"The third raising of the deposit reserve ratio aims to solve
the problem of the liquidity surplus," said economist Yi Xianrong
with the Chinese Academy of Social Sciences.
Rampant fixed assets investment, fast expanding credit and the
imbalance of payments are the main problems in China's economic
development.
Yi added that the rise helped monetary policy enforcement.
(Xinhua News Agency November 4, 2006)