China raised the bank deposit reserve ratio on Friday for
the third time this year in a bid to rein in excessive liquidity in the banking
A clerk at a foreign currency
exchange desk shows Chinese yuan banknotes in this July 22, 2005 file
photo taken at a hotel in Shanghai, China. [AP]
The half-point percentage hike, which will take effect from November 15, will
see the deposit reserve ratio the proportion of deposits that banks must hold in
the central bank raised to 9 per cent for big State banks and joint-stock banks
and to 9.5 per cent for smaller banks, including urban credit co-operatives.
"The problem of excessive liquidity has been alleviated somewhat thanks to
the central bank's efforts to soak them up by deploying a mixture of monetary
instruments," the central bank said in a statement on its website.
"However, the striking surplus in its international payments still remains
outstanding and fresh excessive liquidity is still cropping up," the central
The latest reserve ratio hike comes amid signs that the central bank's
previous monetary tightening policies are working.
The central bank announced similar increases on June 16 and July 21.
The central bank has also increased interest rates twice since late April in
a bid to cool the red-hot economy that expanded 10.9 per cent in the first half
of this year, raising concerns then that the economy may have overheated.
The closely watched indicator of broad money supply, or M2, which covers cash
in circulation and deposits, grew 16.83 per cent in September from a year
earlier, down from 17.9 per cent growth the previous month.
It was up 18.4 per cent in July from a year earlier.
The economy, which surged to a stunning 11.3 per cent in the second quarter,
slowed to 10.4 per cent in the third quarter.
The central bank said the move, which is expected to freeze about 150 billion
yuan (US$19 billion) in liquidity, aims to consolidate its "liquidity-soaking"
"The move shows that the central bank has become more proactive in its
monetary policy," said Han Meng, an economist at the Chinese Academy of Social
"But if the foreign trade surplus still maintains the current momentum and
the inflow of foreign investment still climbs briskly, the central bank will
still face a tough task in reining in the liquidity," the economist said.
China's foreign trade surplus hit US$109.9 billion in the first nine months
of this year, while foreign direct investment stood at US$42.59 billion in the
"The central bank will continue to stick to its sound monetary policy,
keeping the policy stable and consistent," the central bank stressed in the
"It will maintain a steady increase of credit and encourage the expansion of
direct financing to spur the national economy in a sustainable, co-ordinated and
healthy development," the central bank said.