China Boosts Bank Reserve Rate

This half-point move marks Beijing's 11th such move since January 2007.
Author:
Publish date:

HONG KONG -- Beijing lifted the reserve requirement ratio by half a percentage point, to 15%, officials said after market hours Wednesday. This marks the 11th such move since January of last year. The reserve requirement ratio is the amount of money that banks are required to hold against net deposits.

The move comes after a big selloff in regional equities, and in mainland banking shares in particular. On Wednesday the Shanghai Composite Index declined 153 points, or 2.8%, to 5290, led lower by Hong Kong, which fell 5.4%.

It is standard practice for Beijing to raise interest rates in the same quarter as a reserve requirement ratio hike. Such increases are widely expected, as officials have recently reinforced intentions to cool growth in China's white-hot economy. Last week, officials said they would work to bring in China's growth at 8% this year, a target which most analysts believe is too low.

The last time the key banking standard was raised was Dec. 9, when it was boosted by a full percentage point. The Shanghai Composite Index lost 3% of its value the following week.

The announcement was followed 11 days later by an interest rate hike of 18 basis points for the one-year lending rate, to 7.29%, and 27 basis points for the one-year deposit rate, to 4.14%.

Daniel M. Harrison is a business journalist specialising in European and emerging markets, in particular Asia. He has an MBA from BI, Norway and a blog at

www.theglobalperspective.biz

. He lives in New York.