The People's Bank of China (PBC), China's central bank, yesterday ordered commercial banks to further cut back on lending, following last Friday's decision requiring more reserves to be kept with it.

 

The PBC needs to tighten the banking system's liquidity management, further curb the excessive growth of money and credit, and continue to guide commercial banks in controlling the size of medium- and long-term loans, according to the bank's directive.

 

The PBC raised China's benchmark lending rates by 27 basis points in late April, but the economy has shown no signs of slowing from its 10.3 percent growth rate in the first quarter, according to economic data for the month of May.

 

Chinese banks extended 209.4 billion yuan (US$26.2 billion) worth of local currency loans in May alone, nearly double that of the same month last year, the PBC said.

 

Last Friday the PBC announced it was increasing the reserve ratio for commercial banks by 0.5 percentage points from July 5.

 

The move will bring the reserves that most banks are required to keep on deposit with the central bank to 8 percent, taking about 150 billion yuan (US$18.8 billion) in funds out of circulation.

 

The PBC directive, issued after a quarterly meeting held by the bank's monetary committee, said macro-policies should be coordinated in an effort to "actively expand consumer spending, optimize the investment structure and rein in the already fast growth of investment."

 

(Xinhua News Agency June 20, 2006)