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China hikes bank reserve ratio to 15%

(chinadaily.com.cn/Xinhua)
Updated: 2008-01-16 19:29

China's central bank announced a 0.5 percent hike in bank reserve ratio Wednesday in the latest move to cool down the economy and curb inflation.

Lenders must park 15 percent of deposits with the People's Bank of China as reserves from Jan. 25, up from 14.5 percent, the central bank said on its website. The ratio is the highest since 1984.

The PBOC said in a statement that the adjustment is to draw back excess liquidity at banks and curb the overly fast growth of credits.

Excess liquidity is a major challenge for the Chinese government as it could result in asset bubbles and economic overheating. The problem becomes more prominent as the record trade surplus pumps more cash into the country.

The increase in the reserve requirement is the first such move in 2008, and the 11th since January last year. China's decision-makers decided to shift the country's monetary policy from "prudent" to "tight" at the end of last year to keep the economy on track and tame inflation.

Insiders said the PBOC would continue to raise the reserve requirement and conduct open market operations and window guidance to tighten liquidity and credit expansion, given the nation's high global trade surplus.