SteelOrbis Shanghai
The People's Bank of China (central bank) announced on November 10, 2007 that the Renminbi (RMB) deposit reserve ratio of the country's financial institutions will increase by another 0.5 percentage points, effective from November 26, 2007. Consequently, the reserve ratio of deposit-taking financial institutions in China will increase to 13.5 percent. This is the ninth time the central bank has increased the reserve ratio this year.
The Chinese central bank indicated that the increase is aimed at strengthening the liquidity management of the banking system and at restraining the relatively rapid increase in loans. According to data previously released by the central bank, at the end of September broad money supply (M2) in China stood at RMB 39.3 trillion ($5.3 trillion), up 18.5 percent year on year, - 1.7 percentage points higher than the increase rate in the corresponding period of last year. Meanwhile, the balance of RMB loans issued by China's financial institutions increased by 17.1 percent year on year to RMB 25.9 trillion ($3.5 trillion) - 1.9 percentage points faster compared with the growth rate for the corresponding period of last year.
The sharp increase in the amount of loans being issued by China's financial institutions is causing some concern. The meeting of the State Council held on October 24 proposed that great efforts should be devoted to restraining the rapid growth of investment in fixed assets and the excessive use of loans. The central bank's monetary policy report for the third quarter also pointed out that slightly tighter monetary policies should be applied and that comprehensive measures should be adopted in order to maintain normal growth of financial credit and loans.