The central bank yesterday raised commercial banks' reserve
requirement ratio - or proportion of money they must hold in
reserve - by 0.5 percentage point, the first time this year.
It is the 11th hike since the start of 2007 and, effective from
January 25, will push up the ratio to 15 percent.
The People's Bank of China said in a statement that the move was
to implement the nation's policy of strengthening macroeconomic
measures, tightening liquidity in the banking system, and reining
in excessive money and credit growth.
The government pledged at the Central Economic Work Conference
early last month that it would implement tightening measures to
prevent the economy from overheating and structural price rises
from evolving into entrenched inflation.
As the economy is expected to expand by about 11.5 percent for
the whole of last year, excess liquidity has become a concern for
policymakers as the trade surplus continued to expand, although the
growth is slowing.
"It (the move) supports our view that liquidity will be the main
target of the central bank's 'tight' monetary policy this year,"
said Sun Mingchun, economist with Lehman Brothers in Hong Kong, who
expects the ratio to be raised to 18 percent by the end of this
Sun noted that after a series of reserve requirement hikes,
liquidity has become tight at small banks, and further hikes may
hurt them more than big banks.
"Therefore, the central bank may consider introducing
differential policies," he said.
(China Daily January 17, 2008)