PBOC hikes reserve requirement to 7.5% (Xinhua) Updated: 2004-04-12 10:41
The People's Bank of China (PBOC) posted Sunday night a plan to raise
commercial banks' reserve requirement at the central bank to 7.5 percent from
seven percent beginning April 25, in a move to clamp down on fast growth of
money supply and credit which is posing challenges for a healthy economic
growth.
The decision had been approved by the State Council, China's cabinet, and
would apply to the country's "Big Four" state-owned banks, 11 joint-stock banks
and more than 100 urban and rural commercial banks among other financial
institutions. However, thousands of rural and urban credit cooperatives would be
able to continue with the existing six percent standard, the central bank said
in a statement.
A 7.5-percent reserve requirement means that commercial banks should keep 7.5
percent of their deposits in the central bank in preparation for management of
future operation risks. Only the remaining deposits can be used by commercial
banks to lend.
The higher reserve ratio will "freeze" approximately 110 billion yuan
(US$13.3 billion) in commercial banks' liquidity, according to the statement.
The central bank said China's economy, the world's sixth largest, was now
facing such thorny problems as further swelling investment demand, money and
credit growth and mounting pressure from inflation.
"The 0.5-percentage-point reserve hike is largely to prevent runaway growth
of money and credit and keep the national economy expanding on a steady, fast
and healthy track," it said.
Fast credit growth could be in tandem with inflation or "asset price
bubbles", emergence of new non-performing loans at commercial banks and
accumulation of financial risks, the People's Bank pointed out.
The statement said financial institutions' reserves at the central bank now
exceed 2 trillion yuan (US$241 billion).
The People's Bank of China vowed to maintain the current "stable" monetary
policies while making "precautionary and minor" adjustments to help the economy
grow. China has set a seven percent economic growth target for 2004, compared
with 9.1 percent last year.
