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China raises the bank reserve ratio

China's central bank yesterday announced it would raise the amount of money that banks must keep in reserve to curb the liquidity in its roaring economy.

It said the bank reserve ratio requirement will be lifted half a percentage point to 15.0 percent on Friday next week.

The People's Bank of China did so "in order to implement the requirements of tight monetary policy and continue to strengthen management of liquidity in the banking system," it said in an announcement on its Web site.

The increase is the first this year, following 10 such hikes last year as China sought to rein in its economy and dampen inflation.

Those hikes, along with a series of interest rate rises, had minimal effect, and China announced late last year it would adopt a "tight" monetary policy this year, a major change from its longtime "prudent" stance.

The reserve ratio requirement is the amount of money that commercial banks must hold in reserve. Raising it reduces the money flowing through the economy.

China's leaders have said the government's fiscal priority for this year will be to prevent overheating and curb inflation.

Inflation hit 6.5 percent last month from a year earlier, according to a state media report last week, near a 10-year high.

Economic growth is expected to have hit 11.5 percent last year, the fifth consecutive year of double-digit growth, and this year is widely expected to see yet another spurt of growth in excess of 10 percent.
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