Excess liquidity surpasses central bank's expectations

BEIJING -- A senior researcher with the Chinese Academy of Social Sciences (CASS) on Sunday said the latest reserve requirement ratio hike has revealed that China's excess liquidity has risen beyond the expectations of the central bank.

Peng Xingyun, of the CASS Institute of Finance and Banking, told Xinhua that the People's Bank of China (PBOC) had raised the ratio before releasing its financial figures for October, indicating the bank's concern.

The PBOC announced on Saturday that it would raise the reserve requirement ratio by half a percentage point for commercial banks. The move, to take effect from November 26, will push the ratio to a ten-year high of 13.5 percent.

"The PBOC raised the reserve requirement ratio before it released October's money supply and other financial statistics next week, as it is concerned about the excessive liquidity and credit increase," said Peng.

It is the ninth hike this year aimed at "strengthening liquidity management in the banking system and checking excessive credit growth", according to a statement posted on the PBOC's official website.

Peng said the PBOC could raise the interest rate once again by the end of the year.

"It is hard to tell whether the PBOC will raise the interest rate in a short span of time until the NBS makes public the CPI and other indexes of October," said Peng.

PBOC figures showed that by the end of September, the M2, which covers cash in circulation plus all deposits, grew by 18.5 percent from a year ago to 39.3 trillion yuan (US$5.2 trillion).

China's commercial banks lent out 3.36 trillion yuan in the first nine months, surpassing the full-year figure of 3.18 trillion yuan in 2006.

Earlier this week, a report compiled by the Institute of Urban Finance under the Industrial and Commercial Bank of China said the long-term influx of liquidity would quicken due to the continuous appreciation of the yuan and high rate of investment return expectations in the country.

The influx of liquidity would also add pressure to the overheated real estate and stock markets, warned the report.

The central bank also pointed out the country should optimize the economic structure and continue to take a variety of trade and industrial macro-control polices besides implementing a tighter monetary policy.

The country's consumer price index (CPI), a key inflation indicator, rose by 4.1 percent in the first nine months over the same period last year, according to the National Bureau of Statistics (NBS).

The CPI eased slightly to 6.2 percent in September after surging to an 11-year monthly high of 6.5 percent in August.