China raises bank reserves again

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BEIJING, April 17 (AFP): China raised banks' required reserves Sunday for the fourth time this year, extending the fight against excessive liquidity and stubbornly high inflation in the world's second-largest economy. The reserve rate rise, which followed an increase in benchmark bank interest rates on April 5, was the seventh since China stepped up efforts against inflation in October and underscored the government's determination to keep the economy on an even keel. The move was not a surprise -- investors predicted more tightening after last week's data showed an acceleration in inflation, and more worryingly, sustained capital inflows that threaten to keep inflationary pressure high. "This rise continues the tightening measures of the central bank," said Lin Songli, an economist with Guosen Securities in Beijing. "The first-quarter GDP shows that the whole economy is good, so there is still space for tightening." The central bank has also raised interest rates four times since October, slapped price control measures on certain commodities, and clamped down on property speculation. But price pressures driven by soaring global commodity prices and abundant liquidity continue to plague the Chinese economy. Central bank chief Zhou Xiaochuan said Saturday that policy tightening will continue for sometime, as inflation is higher that the government is comfortable with. And last week, Premier Wen Jiabao signalled a hawkish stance for the coming months, saying that the government would use all tools at its disposal to wrestle inflation under control. The 50-basis-point increase, effective from April 21, lifted the required reserve ratio for the country's biggest banks to a record 20.5 percent. It will lock up about 350 billion yuan ($53.6 billion) of cash that banks would otherwise be able to lend. The latest economic data showed China's turbo-charged economic growth barely slowed in the first quarter, giving the government more confidence to press ahead with policy tightening. "I think there will be more required reserves hikes in the coming months, or even this month, but the possibility of an interest rate rise this month is not that big," said Zhu Jianfang, chief economist at Citic Securities in Beijing.