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)