The required reserve ratio for financial institutions engaging
in deposit business will be raised 0.5 percentage points on
February 25, bringing it to 10 percent, the second hike in two
straight months, sources with China's central bank said
yesterday.
This moderate increase shows that the People's Bank of China
(PBC) had shied away from using drastic moves to absorb liquidity
as the country's consumer price index, the measure for inflation,
grew by only 2.2 percent in January, down 0.6 percentage points
from the previous month, observers said.
The reserve ratio hike, the fifth of its kind since last July,
is aimed at dealing with "dynamic currency liquidity changes and to
consolidate macro-economic controls," said the central bank in its
latest statement.?
The statement also said that unbalanced international payment
generated by a mounting trade surplus had resulted in increasing
currency liquidity and made another reserve ratio hike
necessary.
The central bank lifted the deposit reserve ratio by the same
margin of 0.5 percentage points on January 15, which was estimated
to take 150 billion yuan (US$19.3 billion) out of the banking
pool.
However, some economists argued that an interest rate hike was
inevitable, as reserve ratio adjustments and open market operations
had proved ineffective in curbing excess liquidity.
Official data revealed that the newly added renminbi-denominated
loans amounted to 567.6 billion yuan (US$73.2 billion) in January,
approximately equivalent to last January but still twice as much as
last year's monthly average.
The outstanding renminbi-dominated loans amounted to 23.1
trillion yuan (US$2.98 trillion) in January, up 16 percent
year-on-year. The growth rate was 0.9 percentage points higher than
the end of last year and up 2.2 percentage points from last
January.
Yin Zhongli, an expert with the Financial Research Institute of
the Chinese Academy of Social Sciences, called the move "an
expected expedient."
"This won't be the last reserve ratio hike of the year.
Meanwhile, interest rate rises are far from the best tool to absorb
liquidity," he said.
Economist Han Zhiguo contended that an advisable way was to
facilitate the development of the capital market and allow stock
markets to play a bigger role.
The central bank reiterated in its statement that it would
"adopt a prudent monetary policy, tighten the management of bank
liquidity and facilitate the rational growth in monetary
credit."
(Xinhua News Agency February 17, 2007)