THE central bank raised lenders required reserves Friday for the fourth time in just over two months to make good its vow that inflation fighting will be a top priority for the year.
The 50-basis-point increase, effective Jan. 20, will raise the reserve requirement ratio for China s biggest banks to a record high of 19.5 percent.
By forcing banks to lock up more of their cash with the central bank, the government hopes to drain the economy of excess money and tame rising prices, which it worries may stir social unrest.
The People s Bank of China announced the decision in a terse statement published on its Web site.
Abundant cash is seen as the main driver of China s inflation, which hit a 28-month high of 5.1 percent in November as food and property prices soared.
Strident anti-inflation rhetoric from the central bank in recent months have primed investors for more policy tightening and even with the latest move, many believe further tightening is on the cards.
A Reuters poll in December showed economists expect the required reserve ratio to hit 20 percent by June.
While tighter policy may put a lid on China s growth and have taken a toll on the country s share market, many analysts believe any economic slowdown will be moderate.
If anything, that China is tightening policy at a time when U.S. and euro zone interest rates are at record lows is a mark of confidence within the country that its economy, the world s second-largest, is on solid ground, Reuters says.
After switching its monetary stance to prudent from appropriately loose in December, the central bank has repeatedly said that policy must target inflation and asset bubbles.
Analysts believe it will match its tough talk with deeds by using an array of policy tools including loan targets, interest rates and the yuan to tame inflation.
Last year, China raised reserve requirements six times and lifted interest rates twice, with the last rate increase on Christmas Day.
(SD-Agencies)
