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China's central bank to raise deposit reserves

China's central bank to raise deposit reserves

China's central bank ordered commercial banks Saturday to keep more deposits on hand, raising a key reserve requirement in the latest effort to stanch a flood of money into an economy wrestling with high inflation.
The central bank order called for a one percentage point increase in the reserve ratio, half to be done on June 15 and the rest on June 25. The unusual phased-in increase was being done "to strengthen management of liquidity in the banking system," the People's Bank of China said in a brief statement on its Web site.
The move is at least the 15th in the past 18 months as the government wrestles to ease inflation that is at 12-year highs without overly slowing the dynamic economic growth needed to create jobs.
In a sign of the balancing act, the central bank waived the new requirement for banks in central China areas devastated by last month's powerful earthquake.
After the increases, banks will be required to keep 17.5 percent of their deposits in reserve _ a ratio the official Xinhua News Agency said was a record high.
Despite the central bank's repeated nudging up of the reserve ratio, banks remain flush with money, as Chinese prosper from the robust economy and investment pours in from overseas to take advantage of strong growth and a currency that is expected to further rise in value.
Hefty bank lending has helped fuel a run-up in real estate prices in many cities and investment in factories, machinery and other assets. A side effect of the growth has been inflation, with consumer prices 8.5 percent higher in April than a year ago.
Though food prices account for much of the increases and have reportedly moderated in recent weeks, economists said the costs of rents, utilities, wages and other services appear to be rising.
Inflation and cooling moves aside, economists expect growth to moderate slightly this year from its first quarter pace of 10.6 percent.
Fitch Ratings agency said this past week it expects China's economy to grow a solid 10 percent in 2008, with inflation for the full year at between 6 percent and 7 percent.


Updated : 2021-01-18 19:37 GMT+08:00