China plans wider monetary policy reform

Wednesday, January 5, 2011

BEIJING - China’s central bank plans to begin this year a monthly review of banks’ required reserves as part of wider monetary policy reform, it was revealed here Wednesday.

Banks will be subject to different required reserve ratios depending on their role in the economy, China Daily reported citing the official China Securities Journal.

Banks may also receive lower interest income for reserves beyond the levels set by the central bank, as the central bank seeks to reduce interest costs, the Journal said.

The central bank has set up a set of formulas that will be used to calculate the required reserves for individual banks, it said.

The new rules will be implemented progressively and the first nine months of the year will be considered an adjustment period for commercial banks, the Journal added.

The central bank will adjust required reserve ratios for banks based on overall liquidity conditions in the country, which in turn will be measured based on factors such as the deviation between economic growth and lending growth, as well as consumer price inflation, the newspaper said.

The central bank has been working to contain money supply and credit growth back in an effort to curb inflation, which is running at its fastest in 28 months, the daily added.

The central bank raised interest rates twice and increased banks’ reserve requirements six times last year, it said.

Filed under: Economy

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