People's Bank of China announced on the 30th that from August 15 it would raise the yuan deposit reserve rate for deposit-taking financial institutions by 0.5 percentage points. This will be China's six times to raise the deposit reserve ratio this year and the ninth since last year.
As one of the three traditional tools of monetary policy, deposit reserve ratio has been generally considered as a "strong medicine" for currency regulation and control. However, since last year, in the face of the growing liquidity of banking system, the central bank has made it clear that raising the deposit reserve ratio has already become a "fine-tuning" policy. It said that it introduced this measure on the purpose of strengthening the management of banking system liquidity and curbing the excessive growth of monetary loans.
Song Guoqing, professor of China Center for Economic Research under Peking University told the journalist in an interview that telling from the economic data of the second quarter, particularly of June, it is so obvious China is facing increasing inflationary pressure. It is necessary and all the more pressing for the central bank to introduce further macro-control measures.
Li Maosheng, deputy director of the Department of Finance under the CASS stressed that the main purpose for the People's Bank of China to raise deposit reserve ratio shortly after raising interest rates is to curb the excess liquidity through "two-pronged" approach.
According to the data recently released by the National Bureau of Statistics, the growth rate of China's GDP in the second quarter reached 11.9% and that of the first half of the year hit 11.5%. China's consumer price index (CPI) rose by 3.2% and surged more than 4.4% in June. For four consecutive months, the CPI reached or exceeded 3%.But the target of 2007 price control is 3%.
Meanwhile, China's trade surplus totaled $112.5 billion in the first six months, up 83.1% over the same period of last year. This has helped promote the balance of foreign exchange reserves to exceed $1.33 trillion in the first half of the year, an increase of 41.6%. Continued large net foreign exchange inflow brought the country a large amount of funds and led to the excess liquidity.
Professor Song Guoqing added that the ever-growing foreign exchange reserves exacerbated the excess liquidity and forced the central bank made more frequent use of monetary policy tools. Not long ago, it raised interest rates and cut interest tax to retrench the credit.
Excess liquidity has become a prominent economic problem. Within a short span of three months, the central bank raised the deposit reserve ratio for three times and introduced a combination of interest rate increasing and interest tax reduction to curb the excess liquidity.
Economic data of the first six months have clearly exposed two problems, i.e., over-quick growth of bank loans and excessive liquidity, Guo Tianyong said, director of Banking Research Centre under the Central University of Finance and Economics. According to Guo, "The central bank raised the deposit reserve ratio in an effort to reduce available funds for banks and control lending growth, so as to reduce the liquidity of the entire society."
Figures from the central bank also show that in the first half of this year China's new loans by financial institutions reached 2.54 trillion yuan, close to 80% of the actual amount of new loans for the full last year.
By People's Daily Online
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