China raises bank reserve requirement ratio by 50 basis points

22:31, February 18, 2011      

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The People's Bank of China (PBOC), the central bank, announced Friday a rise in the bank reserve requirement ratio of 50 basis points from Feb. 24.

The hike, the second this year and the eighth since the beginning of last year, is the latest move to soak up liquidity to check inflation.

The hike means major banks will have to set aside 19.5 percent of their reserves and small and medium-sized banks will have to keep 16 percent of their deposits in reserve.

China's consumer price index (CPI), a main gauge of inflation, rose 4.9 percent in January, up from 4.6 percent in December.

The PBOC said on Jan. 30 that keeping overall price levels under control by adopting a "prudent" monetary policy would be its top priority this year.

Zhao Xijun, a senior economist at the Renmin University in Beijing, said the hike targeted market liquidity.

"More importantly, the increase aims to control credit growth in the first quarter," he said.

China usually sees lending sprees every first quarter, as banks tend to give more loans at the start of the year to secure profits.

Zhao blamed frantic lending in the first quarter last year for the full-year amount exceeding the government's ceiling of 7.5 trillion yuan.

China's banks extended 1.04 trillion yuan in new loans in January, according to the central bank.

"The central bank may get tougher this year to prevent lending rush in the first quarter", he said.

Source: Xinhua

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