SteelOrbis Shanghai
The People's Bank of
China has decided to raise its RMB deposit reserve rate for deposit-taking financial institutions by half a percentage point, to be effective as of November 15, 2006.
In its announcement, the Central Bank said that since the beginning of this year, it had relieved the problem of over-liquidity through integrated monetary policy tools. It added, however, that the balance of payments surplus and the over-liquidity problem still existed. Thus, the bank had decided to raise the deposit reserve rate again, aiming at further strengthening its control on liquidity.
From July this year, the Central Bank has successively raised the deposit reserve rate four times (this latest increase included). With the cumulative increase totaling two percentage points, the deposit reserve rate will reach nine percent after the latest adjustment.
Generally speaking, the macro-monetary policy of the Chinese Central Bank will not directly affect the real market. Especially in the current situation when an over-liquidity problem still exists in
China, this monetary policy won't have any direct and obvious impact on the steel market in the short run. Nevertheless, this latest deposit reserve rate hike indicates that the Chinese government does not intend to loosen its macro-control policy. Consequently, market players will not be too optimistic about the prospects for domestic steel demand in the future.