Bank reserve ratio raised to cool economy
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economy
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 Web site.
"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 ($5.2 trillion).
China's commercial banks lent out 3.36 trillion yuan in the first
nine months, surpassing the full-year figure of 2006.
China's economy is in its fifth straight year of double-digit
growth, reaching 11.5 percent in the third quarter this year.
But the economy is experiencing inflation pressure, largely from
sharp increases in food prices, and economists complain that too
much growth is being driven by investments in factories and in
high-flying real estate and stock markets.
This reserve ratio hike is expected to remove about 190 billion
yuan ($26 billion) from the financial system. Local-currency deposits
stood at 38.3 trillion yuan at the end of September.
Besides raising the required reserve ratio, the central bank
has also increased interest rates five times this year and sold
bills to soak up cash from the financial system.
Fixed-asset investment in urban areas climbed 26.4 percent in
the first nine months from a year earlier, up from the 24.5 percent
pace in all of 2006. Industrial production jumped 18.9 percent
in September, the biggest gain in three months.
In its quarterly report, the People's Bank of China said inflation
will accelerate to about 4.5 percent this year from 1.5 percent
in 2006, citing stronger inflation expectations and pressure from
food, energy and labor costs.
Inflation of 6.2 percent in September was close to a decade high
because of food-price gains. The rate exceeds the return on bank
deposits and encourages households to switch savings into stocks
and real estate.
Property prices in China's 70 biggest cities climbed 8.2 percent
in the third quarter, according to the statistics bureau.
China's trade surplus jumped 56 percent in September from a year
earlier, taking it to $185.7 billion for the first nine months,
more than the $177.5 billion record for all of 2006.
China's economic growth slowed from 11.9 percent in the second
quarter, the most in more than 12 years.
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