Another deposit reserve ratio hike likely

By Shangguan Zhoudong (
Updated: 2007-06-07 14:43

China may further raise banks' deposit reserve ratio if they have too much in deposits, said Fan Gang, Guangzhou Daily reported, citing a member of the central bank's monetary policy committee.

Zhang Ming, a professor with the World Economics and Politics research department under the Chinese Academy of Social Science, said the central bank may tell lenders to put aside 12 percent or 13 percent of deposits by the end of this year, up from the current 11.5 percent.

The central bank will also issue central bank bonds, in an effort to keep more bank deposits in reserve instead of seeing them lent out, according to Fan.

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The banks' reserve requirement ratio was raised by 0.5 percentage points on May 18 this year to 11.5 percent, effective as of June 5.

The central bank can soak up about 180 billion yuan (US$23.32 billion) from the banking system, but currently the amount of money in the market is ample and capital prices haven't seen sharp increase.

A total of 440 billion yuan central bank notes will expire this month and will inject a large amount of money into the market, so insiders predicted the interest rate for 7-day repo would remain at around 2.3 percent.

Bank traders said that the money market was stable because banks had begun preparing money after the central bank announced the increases in the deposit reserve ratio; they also said the influence of the policy was becoming weak.

"Only the issue of large-cap stocks will have a big impact on the money market," one trader said.

But in May, only some small-cap stocks such as Shenzhen Sea Star Technology Co Ltd and Sunlord Electronics issued new shares.

The deposit reserve ratio hike in May was the fourth time the central bank has raised the deposit reserve ratio this year amid other efforts to rein in excessive liquidity and cool off booming economic growth.

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