The People's Bank of China, the country's central bank,
announced yesterday that it will raise the deposit reserve ratio of
banks, excluding rural cooperative banks and credit cooperatives,
by 0.5 percentage points from August 15.
The hike will bring the reserves that most banks are required to
deposit with the central bank to 8.5 percent. The central bank
raised the deposit reserve ratio of banks last month by 0.5
percentage points.
"The move aims to tighten up the banks' liquidity management,
curb the excessive growth of money and credit and maintain the
development of the economy," said the central bank in a statement
posted on its website.
The move comes as a surprise to many economists, who have been
calling on the central bank to raise interest rates to prevent
possible overheating of the economy through a reduction in the
money available for investment.
China's economy surged 10.9 percent in the first half of 2006,
the fastest in a decade and higher than the targeted annual growth
rate of eight percent set by the government for this year.
The economy continues to roar ahead despite a slew of measures
imposed by the government to ease the blistering growth of
investment.
Total investment in roads, factory equipment and other fixed
assets soared 29.8 percent, an increase of 4.4 percent from the
same period last year, according to official figures released
earlier this week by the National Bureau of Statistics (NBS).
Tang Min, chief economist with the China Mission of the Asian
Development Bank (ADB), said on Thursday he expects China to raise
its interest rates soon.
"The overheating of the economy has become more and more obvious
during the first half of the year so the country needs to raise
interest rates to solve the problem," he said.
The government has vowed to slow down the surge in fixed assets
investment in some sectors troubled by overcapacity and control
excessive supplies of monetary credit but it seems very
cautious?in raising interest rates.
The last time the central bank adjusted interest rates was on
April 27, when it raised the benchmark one-year loan interest rate
from 5.58 percent to 5.85 percent, but did not change the rate of
deposits.
Analysts said a higher interest rate on deposits may help curb
excessive investment, but would also discourage consumption and
investment in stock markets, which the government has been working
hard to encourage for sustainable economic development in the
long-run.
(Xinhua News Agency July 22, 2006)