Foreign Exchange News
- Central bank raises forex reserve ratio
Date: 10-May-2007 Sources: (Shenzhen Daily)
THE central bank is raising its foreign-currency reserve ratio for commercial banks, apparently as a minor step to restrain credit growth.
The ratio, which is the proportion of foreign currency deposits that banks must set aside instead of lending or trading, is being lifted to 5 percent from 4 percent with effect from this month, banking sources said Tuesday..
They said the move had been communicated to banks through a private circular. A central bank official was unable to provide any information on the move.
The foreign-currency reserve ratio was last raised to 4 percent from 3 percent in September 2006. That hike also was not publicly announced by the central bank, but was communicated privately to the market.
The government has in recent months tightened yuan monetary policy through rises in yuan reserve ratios and benchmark yuan interest rates, narrowing the gap between China's domestic rates and higher U.S. rates.
The forex reserve ratio hike appeared to be an effort to prevent banks from responding to the narrowing differential by extending more foreign currency loans, bankers said.
However, given the small size of banks' foreign currency deposits compared with their yuan deposits, the hike is mostly symbolic and will not have a substantial effect on currency trading or overall credit growth, they said.
Sponsor Results:
