Chinese central bank to raise reserve requirement ratio by 50 basis points 2008-01-16 18:16:56   Print

The file photo shows the building of the People's Bank of China in Beijing. China's central bank announced Wednesday it will raise the required reserve ratio for commercial banks by half a percentage point as of Jan. 25.(Xinhua Photo)
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    BEIJING, Jan. 16 (Xinhua) -- China's central bank announced Wednesday it will raise the required reserve ratio for commercial banks by half a percentage point as of Jan. 25.

    The ratio will be raised to 15 percent, the highest since 1984.This increase, the first this year, comes a month after the ratio was raised by a percentage point on Dec. 25.

    The People's Bank of China (PBOC) said in a statement that the adjustment, part of its stringent monetary policy, is to draw back excess liquidity at banks and curb the overly fast credit growth.

    Excess liquidity is a major challenge for the government as it could result in bubbles and economic overheating. China's benchmark Shanghai Composite Index almost doubled last year and the economy expanded 11.5 percent in the first three quarters.

    The problem of excess liquidity becomes more prominent as the record trade surplus pumps more cash into the country.

    China's foreign exchange reserve reached 1.53 trillion U.S. dollars at the end of 2007, up 43.3 percent from 2006, with 461.9 billion U.S. dollars added to the country's forex reserve in 2007,said the PBOC last week.

    "The hike of the reserve requirement by only half a percentage point will have limited impact on the loans extension at the big four state-owned commercial banks, but have far bigger impact on that of the mid- and small-sized banks," said Yin Jianfeng, an expert with the Finance Research Institute of the Chinese Academy of Social Sciences.

    China's renminbi-denominated loans increased 3.63 trillion yuan (501 billion U.S. dollars) in 2007, 14 percent higher than in 2006. The PBOC has set the target for newly-added renminbi loans to be unchanged at 3.63 trillion yuan for the whole of 2008, China Securities Journal, a Xinhua-run newspaper, quoted an unnamed source as saying on Monday.

    At the 2007 Central Economic Work Conference concluded on Dec. 5, the government pledged to shift its monetary policy to "tight" from "prudent" to prevent economic overheating and evident inflation.

    Apart from frequent open market operations, the central bank last year raised the reserve ratio 10 times and benchmark interest rates six times amid efforts to curb inflation and overheating economic growth.

    Insiders said the PBOC would continue to raise the reserve requirement and conduct open market operations and window guidance to tighten liquidity and credit expansion, given the nation's high global trade surplus.

    The government should take a prudent approach toward macro-economic controls, given the uncertainty in the country's economic growth this year with the U.S. economy showing signs of recession, Yin added.

China to raise reserve requirement ratio for 10th time this year

    BEIJING, Dec. 8 (Xinhua) -- China will raise the reserve requirement ratio by 1 percentage point for commercial banks in an effort to cool the booming economy, the central bank announced Saturday.

    The move, which will take effect on Dec. 25, will push the ratio to a new high of 14.5 percent, after it reached a 10-year high of 13.5 percent on Nov. 26.  Full story

ICBC report: Chinese banks' reserve ratio to reach 15% in 2008

    BEIJING, Nov. 11 (Xinhua) -- The Industrial and Commercial Bank of China (ICBC), the country's biggest lender, is predicting in a recent report that China's reserve ratio requirement for commercial banks will probably reach 15 percent in 2008.

    China has raised the reserve ratio for nine times this year to a ten-year high of 13.5 percent in an effort to ease excess liquidity that is pushing the economy to the verge of overheating.  Full story

Editor: Bi Mingxin
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