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
The People's Bank of China (PBOC), 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 ($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 ($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 $15.88 billion.
Deputy chief representative of the Asian Development Bank in China Tang Min
said the PBOC 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 PBOC to raise its interest rate at lease once this
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 PBOC and rein in their loans.
China Daily - Xinhua
(China Daily 02/26/2007 page1)