Reserve ratio increases rate of third time increase rate decrease

The People's Bank of China announced 2nd that it had decided to raise the RMB deposit reserve ratio of deposit-taking financial institutions by 0.5% since 10th, and that rural credit cooperatives and village banks would not be raised. This is the third time this year that the central bank announced the increase in reserve requirements, the adjustment is completed, the reserve ratio of large financial institutions will reach 17%, from June 2008 's 17.5% of the high point is only one step away.　　The increase in the reserve requirement ratio, frozen funds are expected to exceed 300 billion yuan.　　Analysts believe that the central bank's third increase in reserve ratios this year is a further return of monetary policy to normality, reflecting the central bank's concerns about the current liquidity too abundant. Data show that in the end of March 2010, the broad money supply (M2) year-on-year growth fell to 22.5%, is moving towards the 17% regulation target orderly retreat.　　The narrow money supply (M1) also fell for the 2nd consecutive month.　　According to one analyst, M2 and M1 growth will fall to less than 20% in the fourth quarter, in line with new loans of $7.5 trillion a year and a full-year balance, which will help slow inflationary pressures and stabilize inflationary expectations. The central bank's use of the reserve ratio tool may be due to high foreign-exchange payments. The increase of foreign exchange accounts will directly lead to an increase in the amount of basic money, and then through the monetary multiplier effect, resulting in a substantial increase in the money supply.　　In the case of a very ample liquidity in the banking system, it would not be conducive to liquidity control without hedging. Societe Generale, senior economist Lu County, said that the direct reason for the increase in reserve ratio is likely to be higher than expected appreciation of foreign exchange accounts.　　Lianping, chief economist at the bank, also believes that the increase in reserve requirements and foreign exchange accounted for a greater relationship. The central bank's first two hikes in reserve ratios were understood by the market as a warning of the credit impulses of commercial banks, and the pressure on the increase from credit is unlikely to be significant.　　Lu County believes that the April new credit is about 700 billion yuan, which is within the scope of the regulatory level allowed. Does the increase in reserve requirements mean that the rate hike will be postponed again? An industry insider pointed out that there is no fully replaceable relationship between raising reserve requirements and raising interest rates. However, from the conditions to meet the interest rate hike, we need to consider a variety of factors.　　At the same time, interest rate hikes also mean an exit from moderately loose monetary policy, so use of the tool would be cautious. Lianping also believes that the rate hike needs to consider the factors such as price, asset price, RMB appreciation and so on, at present, Fang stock market is at the juncture of concussion adjustment, the rate hike may not be big.