Central Bank raises deposit reserve rate 0.5 points

SteelOrbis Shanghai People's Bank of China (Central Bank) decided to raise RMB deposit reserve rate of deposit-taking financial institutions by 0.5 percent point, which will keep RMB 150 billion ($18.75 billion) of commercial banks out of circulation. In the announcement of the Central Bank, it is said that the excessive growth of fixed asset investment, rapid loan rise, and the enlargement of trade surplus are the major contradictions and problems in the current economic operation. The deposit reserve rate hike of 0.5 percent point is to curb the excessive growth of gross lending amount. Before that, Central Bank issued notes valuing RMB 100 billion ($12.5 billion) to commercial banks on May 17 and June 13 respectively. The note interest rate is lower than the market rate. And the quota is divided according to the credit growth of each commercial bank. The higher the growth rate, the more the bank should subscribe for, which can be regarded as a kind of penalty. Through the three adjustments, Central Bank has frozen about RMB 350 billion ($43.75 billion) of commercial banks, so the capital supply will be tight for the next six months.