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BIZCHINA / Review & Analysis |
Continuous financial tightening under way(China Daily)
Updated: 2007-12-10 11:31 The 10th rise in the reserve requirement ratio this year, coming at the end of the year, clearly marks the beginning of a new round of efforts to shift the country's monetary policy stance from "prudent", an approach it has followed for the past decade, to "tightening". The People's Bank of China, the country's central bank, announced on Saturday that commercial lenders must put aside 14.5 percent of deposits as reserves, starting December 25, up from the previous 13.5 percent. Like nine such hikes early this year, the new move is also aimed at strengthening liquidity management in the banking system and checking excessive credit growth. It is estimated that the latest move will take 380 billion yuan ($51 billion) out of the banking system. A 1-percent hike in banks' reserves ratio after it already reached a one-decade high should be enough to drive home the monetary authorities' message. Chinese policymakers will be resolved to prevent rapid economic growth from overheating and structural price rises from becoming entrenched inflation with a tight monetary policy next year. Meanwhile, the larger-than-usual increase in banks' reserves ratio also highlights the urgency to prevent a boom in credit that usually rebounds at the beginning of a new year. Money supply grew 18.5 percent in October from a year earlier, breaching the central bank's annual target of 16 percent for the ninth straight month. To rein in a red-hot economy on the verge of overheating will be a priority for China in 2008. To that end, the monetary authorities must slow the growth of credit supply. Excessive liquidity growth has considerably contributed to the country's fixed-asset investment and looming asset price bubbles.
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