The central bank raised required reserve ratio for financial
institutions engaged in deposit business by 0.5 percentage points
to 10 percent yesterday, with analysts projecting more such
hikes.
HSBC (China)'s chief economist Qu Hongbin said the country's
central bank is increasing the deposit reserve ratio to absorb
liquidity. "This year we can expect three more reserve ratio
hikes," he said.
In fact, the Bank of America projects the ratio to rise to 11.5
percent this year.
The People's Bank of China (PBC), or the central bank, has
increased the deposit reserve ratio five times since last July,
with the latest move expected to take 176.5 billion yuan (US$23.22
billion) out of the banking pool. In a public statement, the PBOC
attributed the hikes to rising currency liquidity caused by
"unbalanced international payments generated by mounting trade
surplus".
Official data show the country's outstanding yuan-dominated
loans amounted to 23.1 trillion yuan (US$2.96 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 that in last January.
China's trade surplus has continued to surge, with the January
figure rising 67.3 percent year on year to US$15.88 billion.
Deputy chief representative of the Asian Development Bank in
China Tang Min said the PBC wants to use the moderate reserve ratio
hikes as a warning against excessively rapid increases in loans and
rebounding investment.
China Galaxy Securities chief economist Zuo Xiaolei said: "The
hike was expected and won't have much repercussion on the
market."
Standard Chartered Bank economist Stephen Green felt the reserve
ratio hike has reduced the chances of immediate increase in
interest rates after the lunar new year. He expects the PBC to
raise its interest rate at lease once this year.
Ma Jun, a Deutsche Bank economist, stands by the bank's previous
projection that the interest rate will be raised twice, that is, a
total increase of 54 basis points this year.
The Deutsche Bank considers interest rate hikes a proper tool to
deal with the country's rising inflation and upsurge in investment,
he said.
Analysts, too, think financial institutes, rather than
individuals, would be directly affected because rising reserve
ratio forces banks to set aside more of their deposits with the PBC
and rein in their loans.
(China Daily February 26, 2007)