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China's Central Bank Customizes Reserve Requirement Ratios for 40 Local Banks
Feb 23,2011 10:00CST
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BEIJING, Feb. 23 -- The People's Bank of China (PBOC), or the central bank, said on Tuesday that it has implemented "dynamically differentiated required reserve ratios" among 40 local banks with low capital adequacy ratios (CAR) and which witnessed rampant growth in lending since January.

A PBOC spokesman told Xinhua on Tuesday that the central bank has formalized and boosted the transparency of the dynamically differentiated reserve requirement system, which requires different banks to set aside different levels of deposits with the central bank as reserves according to the individual banks' CAR levels and risk-control requirements.

The dynamically differentiated reserve requirement ratio system offers a more flexible mechanism to adjust lending growth and improve the risk prevention capability of banks, the spokesman said.

The spokesman added that the central bank will continue to manage the total market liquidity and implement the prudent monetary policy in the coming months, using tools such as interest rates, reserve requirement ratios and open market operations, as well as dynamically differentiated reserve requirements.

The PBOC announced last week that it would increase the benchmark bank reserve requirement ratio by 50 basis points beginning on Thursday to rein in liquidity amid increasing inflation pressure.

The hike, the second one this year and the eighth since the beginning of last year, came only nine days after the latest interest rate increase, forcing major banks to maintain 19.5 percent of their deposits as reserves at the central bank. Small and medium-sized banks will have to set aside a minimum 16 percent of their deposits as reserves.

China's consumer price index (CPI), a main gauge of inflation, rose 4.9 percent in January, which was lower than market expectations but was still higher than the 4.6 percent in December 2010.

The PBOC said on Jan 30 that keeping overall price levels under control through the adoption of a "prudent" monetary policy would be its top priority this year.


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