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Dynamic ratio model offers flexibility
Source: Xinhua |
February 23, 2011, Wednesday
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Print Edition
Print Edition
THE People's Bank of China, the central bank, yesterday said it has implemented "dynamically differentiated required reserve ratios" among 40 local banks which have low capital adequacy ratios and witnessed rampant growth in lending since January.
A PBOC spokesman said the central bank has formalized and boosted the transparency of the dynamically differentiated reserve requirement system, which requires different banks to set aside different levels of deposits with the central bank as reserves according to the individual banks' capital adequacy levels and risk-control requirements.
The dynamically differentiated reserve requirement ratio system offers a more flexible mechanism to adjust lending growth and improve the risk prevention capability of banks, the spokesman said.
He added that the central bank will continue to manage the total market liquidity and implement the prudent monetary policy in the coming months, using tools such as interest rates, reserve requirement ratios and open market operations, as well as dynamically differentiated reserve requirements.
The central bank announced last week that it will raise the benchmark bank reserve requirement ratio by 50 basis points from tomorrow to rein in liquidity amid rising inflation pressure.
The hike, the second one this year and the eighth since the start of last year, came only nine days after the latest interest rate hike, forcing major banks to keep 19.5 percent of their deposits as reserves at the PBOC. Small and medium-sized banks will have to set aside a minimum 16 percent of their deposits as reserves.
China's Consumer Price Index, a main gauge of inflation, rose 4.9 percent in January, which was lower than market expectations but was still higher than the 4.6 percent in December 2010. The PBOC said on January 30 that controlling overall price levels by adopting a "prudent" monetary policy will be its top priority this year.
A PBOC spokesman said the central bank has formalized and boosted the transparency of the dynamically differentiated reserve requirement system, which requires different banks to set aside different levels of deposits with the central bank as reserves according to the individual banks' capital adequacy levels and risk-control requirements.
The dynamically differentiated reserve requirement ratio system offers a more flexible mechanism to adjust lending growth and improve the risk prevention capability of banks, the spokesman said.
He added that the central bank will continue to manage the total market liquidity and implement the prudent monetary policy in the coming months, using tools such as interest rates, reserve requirement ratios and open market operations, as well as dynamically differentiated reserve requirements.
The central bank announced last week that it will raise the benchmark bank reserve requirement ratio by 50 basis points from tomorrow to rein in liquidity amid rising inflation pressure.
The hike, the second one this year and the eighth since the start of last year, came only nine days after the latest interest rate hike, forcing major banks to keep 19.5 percent of their deposits as reserves at the PBOC. Small and medium-sized banks will have to set aside a minimum 16 percent of their deposits as reserves.
China's Consumer Price Index, a main gauge of inflation, rose 4.9 percent in January, which was lower than market expectations but was still higher than the 4.6 percent in December 2010. The PBOC said on January 30 that controlling overall price levels by adopting a "prudent" monetary policy will be its top priority this year.
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