Bank reserve ratio raised to cool economy

Updated: 2007-11-11 09:12

China's central bank will raise the reserve requirement ratio by 0.5 percentage points for commercial banks to 13.5 percent in an effort to cool the booming economy, the People's Bank of China said late Saturday.

It will be the ninth such move this year, aimed at "strengthening liquidity management in the banking system and checking excessive credit growth", the central bank said in a statement posted on its website.

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"To strengthen liquidity management in the banking system and curb excessive loan growth," lenders must set aside 13.5 percent of deposits from November 26, the statement said. The ratio, up from 13 percent, is the highest since at least 1987, Bloomberg reported.

"Increasing reserve requirements is the most efficient way to manage the excess liquidity coming from the trade surplus every month," said Frank Gong, chief China economist at JPMorgan Chase & Co. in Hong Kong. "If inflation continues to surprise on the upside, the central bank may need to raise interest rates."

The move came shortly after the central bank announced earlier this week its prediction that China's economy would expand more than 11 percent for the whole of 2007, with inflation rising 4.5 percent.

To ensure rational credit growth, the central bank also said it would continue to implement a tightened monetary policy and take a variety of measures to strengthen the macro-control.

By the end of September, the M2, which covers cash in circulation plus all deposits, grew by 18.45 percent from a year ago to 39.3 trillion yuan (US$5.2 trillion).

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