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Reserve ratio hiked to absorb liquidity

(China Daily - Xinhua)
Updated: 2007-02-26 09:53

The central bank raised required reserve ratio for financial institutions engaged in deposit business by 0.5 percentage points to 10 percent yesterday, with analysts projecting more such hikes.

Related readings:  Further deposit reserve ratio hikes likely  Central bank raises deposit reserve ratio  PBOC lifts deposits reserve ratio

HSBC (China)'s chief economist Qu Hongbin said the country's central bank is increasing the deposit reserve ratio to absorb liquidity. "This year we can expect three more reserve ratio hikes," he said.

In fact, the Bank of America projects the ratio to rise to 11.5 percent this year.

The People'sBank of China(PBOC), or the central bank, has increased the deposit reserve ratio five times since last July, with the latest move expected to take 176.5 billion yuan ($23.22 billion) out of the banking pool. In a public statement, the PBOC attributed the hikes to rising currency liquidity caused by "unbalanced international payments generated by mounting trade surplus".

Official data show the country's outstanding yuan-dominated loans amounted to 23.1 trillion yuan ($2.96 trillion) in January, up 16 percentyear on year. The growth rate was 0.9 percentage points higher than the end of last year and up 2.2 percentage points from that in last January.

China's trade surplus has continued to surge, with the January figure rising 67.3 percent year on year to $15.88 billion.