Banking News
- Chinese central bank raises deposit reserve ratio by 0.5%
Date: 8-Jan-2007 Sources: (Xinhua Online)
The required reserve ratio for financial institutes engaged in the deposit business will increase by 0.5 percentage points from January 15, the People's Bank of China announced Friday.
The central bank raised the bank deposit reserve ratio by the same margin of 0.5 percentage points in June, August and November last year.
The move showed the bank's determination to continue to tighten liquidity management, ensure the stable growth of money and credit, and maintain a sustained, coordinated and healthy development of the national economy.
The hike brings the reserves that most banks are required to deposit with the central bank to 9.5 percent.
The three hikes last year helped take around 460 billion yuan out of the banking system.
Fast growth in China's trade surplus over the past two years meant that there was too much liquidity flushing around in the system in 2006.
By November 2006, the gap between bank deposits and loans had reached 11 trillion yuan, the trade surplus exceeded 150 billion U.S. dollars and state foreign exchange reserves topped one trillion U.S. dollars.
Excessive liquidity prompted banks to speed up lending, which in turn spurred investment and led to economic overheating last year.
The central bank responded by adopting retrenching measures such as raising interest rates, lifting the required reserve ratio and issuing central bank bills to keep liquidity growth within a controllable range.
About 1.2 trillion yuan was withdrawn from the system in 2006. Apart from the 460 billion yuan frozen by the three upward adjustments of the required reserve ratio, about 771 billion yuan exited the system in open market operations.
Analysts speculate that the central bank will continue to strengthen liquidity control in 2007.
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