CHINA is studying extra lending curbs to prevent overheating in the world's fastest-growing major economy, according to a central bank official.
The People's Bank of China is considering requiring a larger proportion of new deposits to be set aside as reserves, said a central bank official who declined to be named because he's not authorized to speak publicly. It's also studying larger reserve requirements for bigger banks with faster loan growth.
Targeted curbs would restrain lending growth without hurting cash flow and profits at banks that haven't been taking on as many new deposits. The central bank raised the reserve ratio this month to 14.5 percent, the highest in at least 20 years, as excess liquidity fuels inflation and asset bubbles, Bloomberg News said.
"A higher reserve ratio on new deposits will directly curb banks' ability to use the money to increase lending," said Wang Qian, an economist at JPMorgan Chase & Co in Hong Kong. "The central bank is likely to tighten loan growth more aggressively next year."
The central bank official said so-called "differentiated" reserve rules could be a short-term tool for cooling loan growth. For example, the requirement for new deposits could be 0.5 percentage point to 1.5 percentage points higher than for existing deposits.