Central Bank Hits Loan Spike with Reserve Ratio Increase
 China's central bank said Monday it will require commercial banks to set aside more money in reserves to curb excess liquidity, the sixth such increase this year as regulators continue their efforts to rein in investment. The reserve ratio- the amount of money a bank must park at the central bank - will increase 0.5 percentage points to 12 percent on yuan deposits starting August 15, the People's Bank of China said on its Website yesterday. The increase, the ninth such move since July 2006, will lock up about 160 billion yuan (21.14 billon U.S. dollars) that banks might have used for lending. "The increase is meant to help curb growth in lending and trim liquidity," the central bank said in a statement yesterday. China's money supply growth accelerated in June. M2, the broadest measure which includes cash and deposits, rose 17.1 percent last month from a year earlier to 37.8 trillion yuan after gaining 16.7 percent in May. It topped the government target of 16-percent growth for the fifth straight month. In the first half, banks added 2.54 trillion in yuan-backed loans, up 368.1 billion yuan from a year ago. China's economy grew 11.9 percent in the second quarter, the fastest rate in 12 years, from 11.1 percent in the first quarter. The benchmark Shanghai Composite Index has gained 63 percent this year after soaring 130 percent last year. More to come Economists expected more reserve ratio increases and interest rate increases this year. But the timing of the latest action was a surprise, given that such announcements are usually made on Fridays after markets close, Shen Minggao, a Citigroup economist, said yesterday in a note. The acceleration of monetary policy moves suggests earlier actions have not had the desired affect, analysts said. Shen said he expects one more reserve requirement increase and an additional interest rate hike this year. The central bank has raised benchmark interest and deposit rates three times this year and widened the trading band for the yuan. The latest interest rate increases came on July 21 when one-year deposit and lending rates each rose 0.27 percentage points. |
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