SteelOrbis Shanghai
The People's Bank of
China (Central Bank) has decided to raise its RMB deposit reserve rate for deposit-taking financial institutions by 0.5 of a percentage point, effective as of January 15, 2007. In order to further reduce liquidity, the Central Bank has begun 2007 by introducing this stringent measure, which means that the deposit reserve rate for commercial banks will reach 9.5 percent.
In its announcement, the Central Bank indicated that due to the continuing balance of payments surplus, a new increase in excess liquidity was seen in the banking system, under the rising pressure of credit loans. To adapt to the current changes in liquidity, the People's Bank of
China has again raised the deposit reserve rate so as to consolidate macro-control effects, the announcement continued.
Some market insiders estimate that this latest reserve rate will freeze up RMB 150 billion ($19.2 billion), equivalent to
China's trade surplus for one month. Therefore, the adjustment will not have much impact on market capital demand and can be regarded just as a measure for the control of excess liquidity.