SteelOrbis Shanghai
Consistent with the tight monetary policy determined at the 17th Central Economic Work Conference held in Beijing last week, in order to strengthen the Chinese banking system's liquidity management and prevent an excessive growth in loans the People's Bank of China (central bank) has decided to raise the deposit reserve ratio by a single percentage point as of December 25, 2007. Due to the adjustment, approximately an additional RMB 400 billion will be frozen at China's commercial banks.
This is the tenth time this year that China's central bank has increased the deposit reserve ratio, but is the first time since 2004 that the hike range has been as large as one percentage point. The previous thirteen deposit reserve ratio hikes were all equal to 0.5 of a percentage point.
Insiders also indicate that China's central bank is to make further efforts on deflation in the future, thus signifying more upward movement for the deposit reserve ratio.