The People's Bank of
China, the nation's central bank, will raise commercial banks'
reserve requirements from 7.0 percent to 7.5 percent beginning
April 25. PBOC is tightening the screws on money supply and credit,
issues that are posing challenges to healthy economic growth.
The People's Bank of China (PBOC) announced Sunday night that it
will raise commercial banks' reserve requirements from 7.0 percent
to 7.5 percent beginning April 25. The central bank is tightening
the screws on money supply and credit, issues that are posing
significant challenges to continued healthy economic growth.
The State Council, China's cabinet, has given its seal of
approval to the move.
The new requirement will apply to the country's Big Four
state-owned banks, 11 joint-stock banks and more than 100 urban and
rural commercial banks. However, thousands of rural and urban
credit cooperatives will maintain the existing six percent
standard, according to the central bank.
Reserves are a percentage of total deposits that commercial
banks must maintain for risk management. Only deposits over the
minimum set by the central bank may be used for lending.
The higher reserve will freeze approximately 110 billion yuan
(US$13.3 billion) in commercial banks' liquidity.
China's economy, the sixth largest in the world, is now facing
such problems as continued swelling of investment demand, money and
credit growth and mounting inflationary pressures.
The 0.5-percentage-point reserve hike is largely to prevent
runaway growth of money and credit and keep the national economy
expanding on a steady, fast and healthy track, PBOC announced.
Too-fast credit growth could be accompanied by inflation, asset
price bubbles, emergence of new non-performing loans at commercial
banks and accumulation of financial risks.
The statement said financial institutions' reserves at the
central bank now exceed 2 trillion yuan (US$241 billion).
The People's Bank of China vowed to maintain stable monetary
policies while making "precautionary and minor" adjustments
to help the economy grow. China has set a 7 percent economic growth
target for 2004, compared with 9.1 percent last year.
(Xinhua News Agency April 13, 2004)