China raise reserve ratio by 50 bps to tame inflation

China announced a hike of 50 basis points in required reserve ratio.

China on Sunday announced a hike of 50 basis points in required reserve ratio from Thursday,the eighth raise since October last year,in a bid to tame price rise.

The People’s Bank of China said the move would raise the required reserve ratio for China’s large financial institutions to a record high of 20.5 per cent,which means they have to lock up 20.5 per cent of their deposits as reserves.

The tightening measure has been widely expected after the government said on Friday the consumer price index (CPI),a main gauge of inflation,had reached a 32-month high of 5.4 per cent in March.

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The move came a day after Peoples Bank of China governor Zhou Xiaochuan said that “China will continue tightening monetary policy for some time”.

China has also raised the benchmark interest rates four times since last October,to battle the persistent inflation.

Premier Wen Jiabao said earlier this month during an inspection tour in the eastern Zhejiang Province that the government would use tools including open-market operation,required reserve ratios,interest rates,and the exchange rate to eliminate monetary basis for inflation.

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