Central Bank Raises Deposit Reserve Requirement Ratio by 0.5 Percentage Points

China's central bank has announced an increase of the deposit reserve requirement ratio.

Analysts translate the increase as a move to manage inflationary expectations and avoid recurrence of lending boom.

Damin has more.

Reporter:

The People's Bank of China has decided to raise the deposit reserve requirement ratio by 0.5 percentage points from Jan. 18. The ratio at small financial institutions such as the rural credit cooperatives would remain unchanged to support the agriculture sector.

This is the first time that the PBOC adjusted the ratio of deposit that lenders are required to set aside since the end of 2008 and the first increase for the ratio since June of 2008.

The PBOC has cut the bank reserve requirement ratio for four times in the second half of 2008 to stimulate growth as the global financial crisis started to weigh on the economy.

Zhuang Jian, a senior economist with the Asian Development Bank, says the adjustment doesn't indicate a shift in the moderately easy monetary policy, but an effort to control the pace of lending.

"According to media reports, the country's banks extended 600 billion yuan of loans in the first week of the new year. If the central bank doesn't take action, the credit expansion in the first quarter may exceed that of the corresponding period of last year. It will definitely go against the government's goal of maintaining a relatively fast and stable economic growth."

Zhuang Jian foresees that in the first half of this year, the central bank may take a series of measures to urge for a balanced lending at commercial banks.

As for whether the central bank will raise the interest rate in the second quarter, he notes it will depend on the fluctuation of the consumer price index, a main gauge of inflation.

"The adjustment of the reserve requirement ratio came a little bit earlier than expectation. This indicates the central bank is very concerned about the lending boom. It hopes to take appropriate measures to ensure a steady credit growth in the whole year. Raising the reserve requirement ratio is the first step. It will be followed by similar measures. Meanwhile, an interest rate hike will be seen after a significant increase of commodity price, say the CPI reaches 4% or 5%."

Damin, CRI news.