China raises 6 big banks' reserve ratio
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China's central bank has temporarily raised the reserve requirement ratio of the four major state-owned lenders and two privately-owned banks, sources told Xinhua Tuesday.
Banks must keep an extra 50 basis points, or 0.5 percentage points, in reserves, to check lending, the sources said.
The four state-run lenders are Industrial and Commercial Bank of China, China Construction Bank, Bank of China and Agricultural Bank of China (ABC), the sources said.
The two privately-owned banks are China Merchants Bank Co. and Minsheng Banking Corp., China's first privately-owned bank.
It is the fourth time this year the reserve ratio for the six banks has been raised to rein in lending and combat inflation.
The latest move lifts the four state-run banks' reserve ratio to 17.5 percent.
There was no available public comment from the People's Bank of China (PBOC) and the six lenders.
Lian Ping, chief economist at the Bank of Communications, said the main reason for the move was reining in liquidity.
Guo Tianyong, head of the China Banking Research Center at the Central University of Finance and Economics, said the move would have been a tough decision for the central bank to make and reflects its concerns about inflation.
"The central bank did not use an interest rate hike to check inflation. Instead, it raised the six commercial banks' reserve ratio, which is a relatively gentle way to affect the economy," Guo said.
Before the latest move, the central bank had already raised banks' reserve ratio three times this year - on Jan. 18, Feb. 25 and May 10 - to raise banks' reserve ratio 150 basis points in total.
Experts said the first two hikes were made following an expansion in lending. The third hike was made after liquidity inflows increased, with China having reported 286.3 billion yuan (42.16 billion U.S. dollars) in new foreign exchange in April.
The outstanding balance of deposits at the six banks stands at about 40 trillion yuan, the central bank's credit funds balance sheet show. Thus a rise of 0.5 percentage points in the reserve ratio will mean the freezing of 200 billion yuan in funds, preventing the sum from being lent.
Sources at one of the six lenders told Xinhua Tuesday he could not understand the move.
"The central bank can issue central bank bills to commercial banks to withdraw liquidity," he said.
An analyst at a Shanghai-based securities firm who declined to be identified said the move is due to inflation pressures.
China's July CPI rose 3.3 percent year on year and in August expanded 3.5 percent year on year, according to the National Bureau of Statistics. The September figure is yet to be issued.
The U.S. dollar started depreciating in mid-September while many other currencies - including the Renminbi, the Japanese yen and the Australian dollars - are appreciating.
Japan lowered interests rate last week while the United States and the United Kingdom are mulling looser monetary policy.
"Global liquidity overflows can strain emerging markets. It is reflected in hot money flows and increased asset prices," said Liu Yuhui, an expert with the Institute of Finance and Banking at the Chinese Academy of Social Sciences.
Some money from the developed countries with loose monetary policy did not enter the real economy and found its way into global financial markets, commodities markets, and property and stocks markets in developing countries, Liu said.
The largest amount in three months, about 572 billion yuan of bills in the Chinese money market will mature in October to add to liquidity.
He Yifeng, an analyst at Hongyuan Securities, said the latest move to lift banks' reserve ratio is both effective and low cost and consistent with the central bank's previous moves.
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