China will raise the reserve requirement ratio by one percentage
point for commercial banks in an effort to cool the booming
economy, the central bank announced Saturday.
The move, which will take effect on December 25, will push the
ratio to a new high of 14.5 percent, after it reached a 10-year
high of 13.5 percent on November 26.
This is the country's 10th rise in the reserve requirement ratio
this year. It is aimed at "strengthening liquidity management in
the banking system and checking excessive credit growth", the
People's Bank of China said in a statement posted on its
website.
The move follows the government's announcement at an annual
economic conference concluded on Wednesday, which said the country
would shift its monetary policy stance from "prudent", an approach
it has followed for the last 10 years, to "tightening".
It is the first time China has raised the reserve requirement
ratio by as much as one percentage point since September, 2003. The
other nine rises this year were half a percentage point each.
It means that a tighter monetary policy has been adopted, said
Song Guoqing, Professor of the Peking University.
The move, launched at the end of the year, is also to prevent a
boom in credit, which usually rebounds at the beginning of a year,
he said.
Concerns about investment, the prime driver of China's economic
growth, has been growing this year, as urban fixed assets
investment picked up pace by rising 26.9 percent year-on-year in
the first 10 months.
As the coming CPI for the first 11 months is expected to reach a
new high, the move is also a reflection of the government's
decision to prevent inflation, which has so far been confined to
food, from spilling over into other sectors, said Peng Xingyun, a
researcher with the Research Institute of Finance under the Chinese
Academy of Social Sciences.
Against a background of rising trade surplus and foreign
exchange reserve, the rise is a further move to hedge excess
liquidity in the country, said Peng.
It is estimated that a one percentage point rise of the reserve
requirement ratio could reduce 400 billion yuan liquidity in the
market.
At a conference held by the People's Bank of China on Wednesday,
the central bank plans to use various monetary policy instruments
to curb excess liquidity and to improve the RMB exchange rate
forming mechanism to adjust the total demand and supply and to
improve trade imbalances.
The central bank has raised interest rate five times this
year.
"China's future monetary policies will depend on the country's
economic situations," said Peng, adding "It does not necessarily
mean more rises in interest rates or the reserve requirement
ratio."
(Xinhua News Agency December 9, 2007)