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The following article was published in our article directory on April 18, 2011.
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Raise deposit reserve rate is "double-edged sword"

Article Category: Business

Author Name: xia zihui

Central bank governor zhou xiaochuan recently in boao Asia BBS says, "China's monetary policy should be appropriate tightening, the trend is likely to continue for some time." "China's deposit reserve rate there is not absolute limit." There the words sound just fell on one side, and the central bank had further action.

Yesterday, the central bank announced from April 21, the raise deposit reserve rate 0.5 percentage point, this is the fourth time this year, and the 2010 hike since the 10th rises. The rate of large and medium sized financial institutions after the deposit reserve rate reached 20.5% historical highs, expected to freeze funds 3600 billion yuan.

The personage inside course of study thinks, the control liquidity, disinflationary raise deposit reserve rate is the main catalyst. Generally speaking, compared to raise interest rates, raise deposit reserve rate is the most immediate tool control liquidity.

National bureau of the latest figures show that march consumer price index (CPI) rose by 5.4%. When CPI inflation pressure that more than 5%, reinforced further. Deputy central bank governor, said domestic 16.1 16, the main problems of economic operation inflationary pressure increase is. Pedestrian nanjing branch questionnaire survey also shows in the first quarter, entrepreneurs, bankers and town residents of future inflation expectations are at record high levels, and the price index not evident in the inflection point.

Currency factor is pushing one of the major causes of rising prices. At present, the foreign exchange for hedge continue to increase gap, the central bank launched massive monetary base. For eliminating the rising prices, the central bank monetary factors to consider interest rates four times. While some countries such as America still remain looser monetary policy, causing international liquidity is very abundant. Because domestic interest rates and biggish spread abroad, arbitrage hot money, capital inflows in succession, further promoting the domestic inflationary pressure.

Zhou xiaochuan said on BBS in boao, total economic output larger China, can withstand the impact of some hot money inflows, but if the hot money accumulated to a certain degree, side effects will also relatively large.

In addition, analysis holds that this round of inflation pressures are increasing reason, besides domestic labor costs rose more major outside, promoting international input type inflationary pressures continue to increase. The current political situation in north Africa, the Middle East, Japan, earthquake, etc. unrest factors push commodity prices remain high. Data shows, our province quarter rise compared to the average 59.5% warrants imports, February cotton import 3011 dollars per ton for average, creating the historic highs. 1-3 months on behalf of the international commodity price movements to 10.55%, index increased by CRB international crude oil prices breakthrough in early April, $108 set two and a half years to high. These international commodity prices oscillation uplink push the price hike in raw materials, and then eventually conduction to CPI.

It is worth noting, raise deposit reserve rate is a double-edged sword, in the control liquidity, against inflation at the same time, also reduced the bank lending funds available, increased enterprise especially smes financing difficulty and cost.

Judging from jiangsu province, New Year to the first quarter 1685 billion yuan RMB loans, compared with the same period last year, only about two-thirds of last year, more than 900 million have add less, and 2006 | 2008 three years average 26.5 million, compared to just above. This shows that the credit policy has accelerated from loose expansionary return to pre-crisis levels.

The latest analysis of nanjing branch pedestrian data shows, the deposit reserve rate in the first quarter, sustained rise, market funds rate rose and credit demand are aliased background, financial institutions are gradually tightens capital positions. In the first quarter, according to bankers questionnaire survey the commercial bank capital positions index for 38.6 percent, compared to the previous quarter 9.93 percentage point decline, has two consecutive quarters in recession interval.

Money tight brought directly result is interest rates rise, enterprises financing costs. Pedestrian nanjing branch by monitoring statistics show that rates and deposit RRR hike accumulation effect, financial institutions lending rate by more than 10% in most floating range, including small and medium-sized enterprises floating rate more than 20% overall. While the folk lending rates also rise significantly, some recent small shipping companies pawnshop, monthly payments generally in 1.5-2 points, or 18%, annual interest rate of folk lending rate at 2 -- 3 points monthly payments in between. The provincial development and reform commission data shows, 1 - February private enterprise, small and medium-sized enterprises interest expenses increased by 40 percent and 36.7% respectively, enterprises financing difficulty increase, raising the cost.

Arbitrage hot money, commodity prices is not controllable factors, such as a period of inflation input will still exist. And meanwhile, the raw material cost, labor cost, financing costs and other factors, the domestic enterprise profit space certainly will further compression. This complex situation, to our country further management liquidity formed bigger challenge.

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