Central bank broadens reserve requirements

Central bank broadens reserve requirements

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China's central bank has imposed a new reserve requirement on banks' margin deposits to control liquidity and counter persistent inflation, Bloomberg reported, citing notes published this weekend by economists. The move may drain RMB900 billion (US$140 billion) from the banking system in the next six months, Bank of America Merrill Lynch (BAC.NYSE) economist Lu Ting said in an emailed note on August 26. A press officer from the central bank refused to comment. China's six largest banks will need to start setting aside funds equivalent to up to 21.5% of their margin deposits from September 5, and complete the reserves within three months, Shen Jianguang, an economist at Mizuho Securities Asia (MFG.NYSE), said on August 27, citing information from investor contacts. Smaller banks will have to meet a 19.5% requirement within five months, he said. China has already raised reserve ratios rapidly in recent months to 21.5% for the biggest banks, in an effort to tame the country's 6.5% year-on-year inflation.