China has ordered banks to include their margin deposits in required reserves at the central bank to mop up excessive liquidity, banking sources said on Friday, the latest move in Beijing’s campaign to rein in worrisome inflation. Commercial banks will be required to include margin deposits paid by their clients to secure the issuance of banker’s acceptance, letters of guarantee and letters of credit in their required reserves.
Such deposits amounted to 4.4 trillion yuan ($688.6 billion) at the end of July, according to central bank data. It was not immediately clear by how much additional money banks would have to set aside as reserves, but the actual amount would vary from bank to bank. “We estimate that the step could lock up about 800 billion yuan in bank liquidity,” said one banking analyst, who declined to be identified.
Some banks have received the order notice from the People’s Bank of China, which requires them to pay deposits to the central bank in batches, the sources said. One of the sources said they had reviewed the central bank notice.
NOT LET-UP IN INFLATION BATTLE:
Chinese leaders still view inflation as the primary enemy, repeatedly stressing that controlling price pressures remained the top priority, even as economic growth is slowing. China’s annual inflation in China hit a three-year high of 6.5 per cent in July. “Chinese policymakers are still worried about inflation risks and they face a tough job in controlling liquidity as Western countries maintain loose monetary policies,” said Lu Zhengwei, senior economist at Industrial Bank in Shanghai.
