Further deposit reserve ratio hikes likely
(Xinhua)Updated: 2007-02-25 15:59
Tang Min, deputy chief representative of the Asian Development Bank in China, says the central bank intends to use the moderate reserve ratio hikes as a warning against excessively rapid increases in loans and rebounding investment.
"The hike is expected and won't have many repercussions on the market, although further hikes will be possible," said Chief economist Zuo Xiaolei with the China Galaxy Securities.
To tighten money supply and curb inflation, China's deposit reserve ratios hovered around 13 percent from 1988 to 1998. The Bank of America predicts the ratio is likely to rise to 11.5 percent this year.
Economist Stephen Green with the Standard Chartered Bank said that the reserve ratio hike reduced the chances of immediate increase in interest rates following the Spring Festival. He predicts the central bank will raise its interest rate at lease once this year.
Ma Jun, an economist with the Deutsche Bank, stands by the bank's previous projections that interest rate will be raise twice to increase by 54 basis points this year.
He said the Deutsche Bank regards raising interest rate hikes as a proper tool to deal with the country's rising inflation and upsurge in investment.
Analysts also contend that financial institutes rather than individuals would be directly affected as a rising reserve ratio which forces the banks to set aside more of their deposits with the central bank and rein in their loans.
The country's stock markets and asset management businesses that service individual clients won't be greatly affected, they note.
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