reserve ratio

The pace is picking up. China is to tighten policy again, raising reserve requirements by 50bp effective February 24. The news follows a rate rise ten days ago. The People’s Bank’s promise of “intensive adjustment” to its monetary policy in Q1 hasn’t disappointed; the last reserve requirement hike, also of 50bp, was announced on January 14. Reserve requirements for big banks are believed to be 19.5 per cent now; they are 16 per cent for smaller banks.

China’s biggest banks will need to place 19 per cent of their deposits with their central bank from December 20. The People’s Bank of China has raised the depository reserve requirement by 50bp for the third time in five weeks, and the sixth time this year. Presumably – though this is not detailed in the release – the reserve requirement for China’s small- and medium- sized banks will be 17 per cent.

No reason was given for the move, which will mop up excess cash in the system and dampen inflation. An alternative tightening move – to raise interest rates – has not been taken since October 20. The last two reserve-requirement raises were effective November 16 and 29.

Monetary tightening in China just sped up. The Chinese central bank has just announced another 50bp increase in the deposit reserve ratio – which will happen at the end of November. The previous hike on November 10 was also 50bp and was expected to remove about $45bn liquidity from the Chinese economy.

Presumably – though this is not detailed in the release – the new reserve ratios will be: 18.5 per cent for six largest banks; 18 per cent for other large banks; and 16 per cent for small- and medium- sized banks. China is also raising rates – a 25bp hike took place a month ago and there have been further rumours since then and today in the markets (though perhaps the reserve increase will substitute). Read more

More on that China rumour (which is no longer a rumour). The People’s Bank does plan to raise the deposit reserve requirement by 50bp, broadening and making permanent a temporary measure introduced almost exactly a month ago. The move, which takes effect on November 16, is expected to reduce liquidity by $45bn.

Back then, the measure affected six large commercial banks for two months. Four of those six banks will now see their deposit reserve requirement ratio (ratio) rise to 18 per cent. Other large deposit-taking institutions will see their ratio rise to 17.5 per cent, while small- and medium- sized banks will have a ratio of 15.5 per cent. Read more

Temporary measures designed to ease a cash crunch in the banking sector over the weekend have been extended to run till Thursday. Additional liquidity will be provided to banks through an extra daily auction, since the Bank’s “liquidity adjustment facility window … has been in … deficit … recent[ly]“. Extra auctions were initially set for October 29, 30 and November 1. Now, auctions will also take place on November 2, 3 and 4.

Banks can also avail themselves of a temporary reduction in the statutory liquidity ratio: they will be allowed to hold 24 per cent rather than 25 per cent with the central bank. By one estimate, this small reduction is equivalent to an additional $10bn liquidity. Read more

Rates have been held today by Poland’s central bank, but some additional liquidity will be drained from the system by the decision to increase the amount of capital banks have to keep with the central bank. The reserve ratio will be increased from 3 to 3.5 per cent, the bank said, via Google translate.

No further information was given as the press conference hasn’t happened yet.

China has temporarily increased the reserve ratio required from six large commercial banks banks. For two months, the banks will need to keep 17.5 per cent of depositors’ balances on hand, instead of 17 per cent. With banks hoarding more cash, money supply and credit availability will fall in China. In two months’ time, the reserve ratio is expected to return to 17 per cent.

The surprise move, reported by Reuters from four unnamed sources, may be a response to rising capital flows, rather than a prelude to monetary tightening. It could also be intended as a warning to banks rumoured to have stepped up their lending in September, above government targets. Read more

Confusion this morning over a central bank edict to further raise the reserve ratio for certain banks.

Apparently individual lenders, including Citic Bank and Everbright Bank, have been asked to curb their lending for the rest of this month. A surge of new lending in January has triggered a series of intensifying actions by authorities to rid the financial system of excess cash that can fuel inflation and asset bubbles. Last week, China’s central bank raised bank reserve requirements for the first time since June 2008. Read more

Just as China raises its reserve ratio for banks, Vietnam has lowered theirs. The State Bank of Vietnam has lowered the mandatory reserve ratio from 7 to 4 per cent for deposits of less than a year, and from 3 to 2 per cent for longer deposits. (China raised its ratio from 5 to 5.5 per cent, effective today.) The Vietnamese change will be effective from February.

The change suggests increased confidence and risk appetite by the Vietnamese central bank, as banks will have a smaller capital buffer in difficult times. The extra cash at banks’ disposal will permit greater lending. The new ratios will not apply to the Bank for Agriculture and Rural Development, Vietnam’s largest bank by assets, for which ratios of 3 and 1 per cent will apply instead.