Home / Metal News / Lead / ADB Chief Says China's Latest Move to Rein in Liquidity Appropriate
ADB Chief Says China's Latest Move to Rein in Liquidity Appropriate
Jan 15,2010 08:51CST
data analysis

MANILA, Jan. 15 -- Asian Development Bank (ADB) President Haruhiko Kuroda said Thursday that China's move to raise bank reserve requirement this week will help cool down the overheating real estate sector but will not undermine the country's strong recovery.

The central bank of China announced late Tuesday that it is going to raise the deposit reserve requirement ratio by 0.5 percentage point from Jan. 18 this year, the first increase since June 2008, reflecting Beijing's concerns over the excessive liquidity brought by the government's implementation of extraordinary stimulus last year to combat recession.

Speaking at an economic forum held in ADB headquarters here, Kuroda said the central bank's latest move is not so much of "tightening" but adjustment of the extremely expansionary monetary policies towards more neutral and less expansionary ones.

 "It appears quite appropriate," Kuroda said, adding that the inflationary pressure at present is not so prominent but in some cities real estate prices have risen very sharply in the past few months.

Andrew Sheng, Chief Advisor of China Banking Regulatory Commission, said Chinese policy makers need to carefully weigh the risks of inflation and bubbles at the moment and the reserve requirement ratio adjustment appears in time.

China's M2, a broad measure of its money supply, amounted to 59.64 trillion yuan (8.73 trillion U.S. dollars) at the end of November, up 29.74 percent from a year ago, according to the latest available data released by the Chinese central bank.

And in the first week of this year, the amount of new bank loans reached 600 billion yuan (88 billion U.S. dollars) and is poised to surpass one trillion yuan if the trend continues, state media reported.

Sheng said China banking system's risk management capability has been strengthened a lot over the past few years but the evolving external environment makes risk management a far more difficult task for regulators. Sheng said it will take some time before effects of central bank's this policy adjustment become apparent.

On the regional front, Kuroda said while the developing Asia is leading the global recovery, policy makers should carefully time the exit strategies for fiscal stimulus.

The ADB says the region is in a V-shaped recovery and is expected to achieve 6.6 percent economic growth for this year.

But Kuroda said it is still too early to relax vigorous efforts to restore demand and stabilize financial systems.

 "In particular, exit strategies for fiscal stimulus must be carefully timed. The recovery could falter if policy makers tighten too early. But tightening too late may lead to higher inflation and unsustainable fiscal deficits and large debts," he said.

Kuroda said he does not think that the move would affect China's rapid rebound. He said China's economic growth is set to reach the government's target of 8 percent in 2009 and is forecast to reach 9 percent this year.

deposit reserve ratio

For queries, please contact Frank LIU at liuxiaolei@smm.cn

For more information on how to access our research reports, please email service.en@smm.cn