Bank reserve ratio raised to cool investment
(Agencies)Updated: 2007-04-29 12:52
 A man walks past a billboard for a new property development being erected in Beijing April 24, 2006. The central bank is to raise the reserve ratio of the commercial banks by 0.5 percentage points to 11% in a bid to cool the investment boom. [Reuters]  |
China raised the amount of money banks must hold in reserve for the fourth
time this year Sunday, reducing the amount available for lending in a new effort
to cool an investment boom.
The order by the country's central bank comes
on top of repeated interest rate hikes and investment curbs imposed on real
estate, auto manufacturing and other industries over the past year. The effort
has had limited success in slowing the growth of investment.
The amount of reserves that lenders must keep with the central bank was
raised 0.5 percentage point to 11 percent of their deposits, the People's Bank
of China said. The increase takes effect May 15.
"(The increase) is aimed
at stepping up liquidity management of the banking system and to guide a
reasonable growth of credit," the bank said on its Web site.
Beijing has
raised the bank reserve ratio seven times over the past year, each time by 0.5
percentage point. It stood at 7.5 percent of deposits before the first increase
last June. The last increase was April 16.
The bank is trying to contain
a boom in lending and real estate development that the government worries could
ignite inflation or a debt crisis.
Earlier this month, China announced
that the economy surged 11.1 percent in the first quarter of this year,
prompting the government to say it would take steps to keep the economy from
overheating.
The consumer price index rose 3.3 percent in March, data
showed, above the government's 3 percent target. And fixed-asset investment
countrywide grew a robust 23.7 percent during March.
The move also
showed the central bank's determination to continue to tighten liquidity
management, a major problem threatening China's economy.
Last year the economy grew 10.7 percent - the highest rate
since 1995.
|
Date |
Before Adjustment |
After Ajustment |
Margin |
Stock market (Shanghai) performance the day after the ratio hike | ||
|
|
|
|
|
Opening |
Closing |
Changes (%) |
|
May 15, 2007 |
10.5% |
11.0% |
0.5% |
- |
- |
- |
|
Apr 16, 2007 |
10% |
10.5% |
0.5% |
3287.68 |
3323.59 |
+0.13 |
|
Feb 25, 2007 |
9.5% |
10% |
0.5% |
2999 |
3040 |
+1.40 |
|
Jan 15, 2007 |
9% |
9.5% |
0.5% |
2668 |
2641 |
-2.74 |
|
Nov 15, 2006 |
8.5% |
9% |
0.5% |
1853 |
1886 |
+1.07 |
|
Aug 15, 2006 |
8% |
8.5% |
0.5% |
1648 |
1665 |
+0.04 |
|
Jul 10, 2006 |
7.5% |
8% |
0.5% |
1559 |
1586 |
+0.75 |
The central bank has been struggling to mop up a torrent of cash stemming from China's record trade surplus, which doubled in the first quarter of 2007 from a year earlier, and from capital inflows betting on a stronger yuan.
Policy makers are also concerned that the ready availability of cheap money
is fuelling an unsustainable rally in the domestic stock market, which has risen
40 percent this year on top of a 130 percent leap in 2006.
The central
bank said it was still worried about China's international balance of payments
problem, which is boosting the excessive liquidity.
The trade surplus
hit a record US$177.5 billion in 2006, up 74 percent from the previous year,
straining ties with Washington and other trade partners who say Beijing has not
done enough to let its currency appreciate.
China's foreign exchange reserve reached US$1.2 trillion by the end of March, up 37.36 percent from the same period last year, maintaining the largest in the world since the end of February 2006.
Li Xiaochao, spokesman of the National Bureau of Statistics, said recently that China's economy faces the risk of shifting from relatively fast growth to over-heating.
Li acknowledged that the Chinese government would take more small steps rather than drastic cooling measures to ensure a stable and fast economic growth.
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