Central bank further raise reserve ratio 0.5 point

The People’s Bank of China announced recently to raise renminbi deposit reserve ratio at 0.5 points, beginning on 25 February, almost the same time before the Federal Reserve said on February 18 to raise its discount rate by 25 points from 0.5 per cent to 0.75 per cent. The Fed said it was not meant for credit tightening, extra-low rate level would be maintained for a certain period.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

This is the second adjustment from the central bank to lift reserve ratio. It has been estimated the present adjustment could freeze the fund at least by 300 billion  yuan. Experts at banking sectors has already noticed the signs of the adjustment from large issuance of loans by the central bank before the Spring Festival; What is more, a great amount of central bills expire at February and march, which could be offset accordingly. Henceforth, major financial institutions are about to operate at the rate of 16.5 per cent, while mid and small sectors for 14.5 per cent.

The twice ups of reserve requirements has given further expectation to tightening policy, and has given support to the published report about the former exertion of monetary policy, in which it’s said M<?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />2 in 2010 will be increased by 17 percent, and it ought to strive for a normal credit situation when combating the financial crisis, based on the actual growth of 2010, the price changes and cross-border fund flows. Bank sectors should handle well the stages of credit to avoid excessive fluctuating at quarter end or month end.