China's central bank will raise the reserve requirement ratio by 0.5 percentage points for commercial banks to 13.5 percent in an effort to cool the booming economy, the People's Bank of China said late Saturday.
It will be the ninth such move this year, aimed at "strengthening liquidity management in the banking system and checking excessive credit growth", the central bank said in a statement posted on its website.
"To strengthen liquidity management in the banking system and curb excessive loan growth," lenders must set aside 13.5 percent of deposits from November 26, the statement said. The ratio, up from 13 percent, is the highest since at least 1987, Bloomberg reported."Increasing reserve requirements is the most efficient way to manage the excess liquidity coming from the trade surplus every month," said Frank Gong, chief China economist at JPMorgan Chase & Co. in Hong Kong. "If inflation continues to surprise on the upside, the central bank may need to raise interest rates."
The move came shortly after the central bank announced earlier this week its prediction that China's economy would expand more than 11 percent for the whole of 2007, with inflation rising 4.5 percent.
To ensure rational credit growth, the central bank also said it would continue to implement a tightened monetary policy and take a variety of measures to strengthen the macro-control.
By the end of September, the M2, which covers cash in circulation plus all deposits, grew by 18.45 percent from a year ago to 39.3 trillion yuan (US$5.2 trillion).
China's commercial banks lent out 3.36 trillion yuan in the first nine months, surpassing the full-year figure of 2006.
China's economy is in its fifth straight year of double-digit growth, reaching 11.5 percent in the third quarter this year. But the economy is experiencing inflation pressure, largely from sharp increases in food prices, and economists complain that too much growth is being driven by investments in factories and in high-flying real estate and stock markets.
This reserve ratio hike is expected to remove about 190 billion yuan from the financial system. Local-currency deposits stood at 38.3 trillion yuan at the end of September.
Besides raising the required reserve ratio, the central bank has also increased interest rates five times this year and sold bills to soak up cash from the financial system.
Fixed-asset investment in urban areas climbed 26.4 percent in the first nine months from a year earlier, up from the 24.5 percent pace in all of 2006. Industrial production jumped 18.9 percent in September, the biggest gain in three months.
In its quarterly report, the People's Bank of China said inflation will accelerate to about 4.5 percent this year from 1.5 percent in 2006, citing stronger inflation expectations and pressure from food, energy and labor costs.
Inflation of 6.2 percent in September was close to a decade high because of food-price gains. The rate exceeds the return on bank deposits and encourages households to switch savings into stocks and real estate.
Property prices in China's 70 biggest cities climbed 8.2 percent in the third quarter, according to the statistics bureau.
China's trade surplus jumped 56 percent in September from a year earlier, taking it to US$185.7 billion for the first nine months, more than the US$177.5 billion record for all of 2006.
China's economic growth slowed from 11.9 percent in the second quarter, the most in more than 12 years.
