Money

China still has room for RRR rises

(Agencies)
Updated: 2010-12-09 16:10

China's central bank needs to further raise banks' reserve requirements ratio (RRR) and issue more bills next year to mop up excessive liquidity, Reuters reported on Dec 9, citing a former deputy central bank governor.

Wu Xiaoling, who is now a senior lawmaker, said China must ratchet up efforts to shield the economy from speculative money inflows fanned by monetary policy easing in the United States.

"The priority is to increase the sterilization to reduce the impact from global speculation capital on China's real economy," Wu was quoted by the 21st Century Business Herald as saying.

The country's top leadership has announced a shift in its monetary stance to "prudent" away from "appropriately loose".

Related readings:  PBOC to raise reserve ratio  China raises 6 big lenders' reserve ratio  CPI rise may signal bank tightening  China embarks on journey to manage liquidity

Although the reserve requirement ratio had hit a record high of 18.5 percent now after five increases so far this year, Wu said there was still room for further rises.

A common way to set the annual broad money supply target was to add one or two more basis points to the country's estimated GDP growth rate plus consumer inflation, Wu said.

China would be biased towards the lower end when setting its annual target for money supply growth next year, she added.

The newspaper said there was market consensus that China would control broad money supply growth at around 15 percent and new lending at 7 trillion yuan ($1.04 trillion) for 2011, down from this year's target of 17 percent and 7.5 trillion yuan, respectively.