China Raised Rates Again

The People’s Bank of China announced today that the reserve requirement ratio for financial institutions’ yuan deposits would be raised again by 50bp,
effective from December 20th. After today’s hike, the reserve requirement ratios for large banks stand at 18.5% and 16.5% for medium and small financial institutions. This is the sixth hike in the RRR this year.

Today’s hike, following two RRR hikes on November 29th and 10th, each by 50bps, and another three hikes earlier this year, is a further move by the central bank to withdraw excess liquidity in managing overall monetary conditions, and to contain bank loan growth. Indeed, RRR hike remains a cheaper and more high-profile move than open market operations for liquidity management, with 1 year PBoC bill yield at 2.3437% vs. 1.62% interest on required reserve.