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Central bank raises deposit reserve ratio

(Xinhua)
Updated: 2006-08-16 09:51

The People's Bank of China, China's central bank, raised banks' deposit reserve ratio Tuesday by 0.5 percentage points to rein in excessive bank lending.

The hike brings the reserves that most banks are required to deposit with the central bank to 8.5 percent. The central bank raised the bank deposit reserve ratio by the same margin of 0.5 percentage points in June.

The central bank expects the two hikes - one percentage point in total - will take 300 billion yuan out of circulation.

"The move aims to tighten up banks' liquidity management, curb the excessive growth of money and credit and maintain the development of the economy," said the central bank in a statement posted on its website.

The move came as a surprise to many economists, who have been calling on the central bank to raise interest rates to reduce the money available for investment and prevent possible overheating of the economy.

China's economy surged 10.9 percent in the first half of 2006, the fastest growth in a decade and higher than the targeted annual growth rate of eight percent set by the government for this year.

The economy continues to roar ahead despite a slew of measures imposed by the government to ease the blistering growth of investment.

China's commercial banks lent 2.34 trillion yuan in the first seven months of the year, consuming 94 percent of their annual loan quota, according to statistics from the People's Bank of China.

New loans, which had dropped in June, picked up speed again in July despite government efforts to curb the money supply and tighten credit. In July alone banks lent 171.8 billion yuan.

Economists attributed the excessive growth to loose liquidity, which contributes to an unbalanced economic structure and could cause hiccups in the economy.