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| China Raises Bank Reserve Ratio |
| Date: [2010.05.05] Hits: 68 |
May 04, The People’s Bank of China, the central bank, said Sunday it was lifting the reserve requirement ratio by 0.5 percentage point, effective May 10, taking the bank reserve ratio for large banks to 17% and that of small and medium-sized banks to 15%, the 21st Century Business Herald reported Tuesday.
The move is the third increase of the reserve ratio this year, and is expected to remove up to RMB 300 billion in liquidity from the banking system. Rural credit cooperatives and village banks are exempt from the increase.
Analysts see the move as an attempt to tighten liquidity and believe it may hold back an increase in interest rates. Opinion is divided over the potential impact on China’s stock markets, into which large chunks of banking lending flow.
Brokerage Shenyin & Wanguo Securities Co., Ltd. said in a note that a regular raising of banks’ reserve ratios and the growing issuance of central bank bills indicate an overheating economy, adding that the consumer price index (CPI) may peak at 4% in October. As a result a hike in interest rates in inevitable this year.
China’s CPI, an inflationary indicator that measures the change in the cost of a fixed basket of products and services, rose 2.4% year-on-year in March; gross domestic product grew 11.9% in the first quarter compared to the same period a year earlier.
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