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China extends selective reserve ratio hike for big lenders
By Leo Zhang |
December 13, 2010, Monday
|
Online Edition
Online Edition
CHINA has extended a selective hike on the reserve requirement for six large mainland banks for another three months after an initial two-month period ended as its latest move to soak up liquidity, industry sources said today.
The 50-basis-point increase was announced in mid-October and was due to expire this week. The six banks are Industrial and Commercial Bank of China, China Construction Bank, Bank of China, Agricultural Bank of China, China Merchants Bank and China Minsheng Banking Corp.
The move just came after China on Friday raised the reserve requirement for all banks for the third time in five weeks to 18.5 percent. Thanks to the extension of the selective hike, the reserve ratio for the six banks involved will hit a record high of 19 percent.
"It's in line with a prudent monetary policy," said a Shanghai-based banking source who is briefed on the matter. "Now we expect more increases on the reserve ratio in the first quarter of next year."
Reuters also reported the news earlier today, saying such an extension on the selective reserve requirement increase will lock up about 180 billion yuan (US$27 billion) away from lending.
China's consumer prices growth soared to a 28-month high of 5.1 percent in November while bank lending also exceeded analysts' forecast, leading the monetary authority to take immediate actions to mop up liquidity.
Early this month, China announced a shift to a "prudent" monetary policy in 2011 from the previous "moderately loose" stance after a meeting of top leaders of the Chinese Communist Party chaired by President Hu Jintao.
The meeting also concluded that macroeconomic policies will become more targeted, more flexible and more effective, paving the way for the country to tighten lending controls and raise interest rates.
Also during the three-day annual Central Economic Work Conference through Sunday, Chinese leaders vowed again to give priority to combating against inflation next year to ensure stable economic growth.
China surprised the market by increasing benchmark interest rates in October, the first time in three years. Except for the selective increase, the central bank has increased the banks' reserve ratio six times this year with a combined hike of 3 percentage points.
"The hike in banks' reserve ratio is the most frequently-used and efficient tool to mop up liquidity," said Zhu Weimin, a trader with Shanghai Securities Co. "The country needs to take preemptive measures to fend off hot money amid growing inflationary pressure."
Early in November, central bank governor Zhou Xiaochuan said China's existing foreign exchange controls were able to prevent irregular capital inflows, and proposed establishing a "pool" that could help lock and release capital as required.
The "pool" was later interpreted by deputy central bank governor Ma Delun as constructing a series of policy measures to manage hot money, including foreign exchange management of capital inflows, open market operations and raising banks' reserve ratio.
The 50-basis-point increase was announced in mid-October and was due to expire this week. The six banks are Industrial and Commercial Bank of China, China Construction Bank, Bank of China, Agricultural Bank of China, China Merchants Bank and China Minsheng Banking Corp.
The move just came after China on Friday raised the reserve requirement for all banks for the third time in five weeks to 18.5 percent. Thanks to the extension of the selective hike, the reserve ratio for the six banks involved will hit a record high of 19 percent.
"It's in line with a prudent monetary policy," said a Shanghai-based banking source who is briefed on the matter. "Now we expect more increases on the reserve ratio in the first quarter of next year."
Reuters also reported the news earlier today, saying such an extension on the selective reserve requirement increase will lock up about 180 billion yuan (US$27 billion) away from lending.
China's consumer prices growth soared to a 28-month high of 5.1 percent in November while bank lending also exceeded analysts' forecast, leading the monetary authority to take immediate actions to mop up liquidity.
Early this month, China announced a shift to a "prudent" monetary policy in 2011 from the previous "moderately loose" stance after a meeting of top leaders of the Chinese Communist Party chaired by President Hu Jintao.
The meeting also concluded that macroeconomic policies will become more targeted, more flexible and more effective, paving the way for the country to tighten lending controls and raise interest rates.
Also during the three-day annual Central Economic Work Conference through Sunday, Chinese leaders vowed again to give priority to combating against inflation next year to ensure stable economic growth.
China surprised the market by increasing benchmark interest rates in October, the first time in three years. Except for the selective increase, the central bank has increased the banks' reserve ratio six times this year with a combined hike of 3 percentage points.
"The hike in banks' reserve ratio is the most frequently-used and efficient tool to mop up liquidity," said Zhu Weimin, a trader with Shanghai Securities Co. "The country needs to take preemptive measures to fend off hot money amid growing inflationary pressure."
Early in November, central bank governor Zhou Xiaochuan said China's existing foreign exchange controls were able to prevent irregular capital inflows, and proposed establishing a "pool" that could help lock and release capital as required.
The "pool" was later interpreted by deputy central bank governor Ma Delun as constructing a series of policy measures to manage hot money, including foreign exchange management of capital inflows, open market operations and raising banks' reserve ratio.
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