China raises reserve ratio

In a move to temper the staggering pace of economic growth and curb inflationary pressures, China's central bank has raised the reserve ratio by 50 basis points. Commercial banks will now be required to set aside 10% of their deposits in cash reserves. This is the second hike in 2007 and fifth since last July.

The People's Bank of China is concerned that continued growth will stoke consumer prices as the economy marks a record trade surplus. Mounting trade surplus along with strong FDI inflows are adding to the excessive liquidity in the banking system and the central bank has taken a slew of measures to slow the pace of lending.

"Since 2006, the People's Bank of China has used a combination of monetary tools to soak up liquidity in the banking system and has achieved some results," the central bank said in a statement posted on its web site. "But the surplus in international payments remains large and the pressure on loan expansion is still relatively big so it is necessary to again increase the reserve ratio," it said.

China's economy, the world's fourth-largest, expanded 10.7% in 2006. And consumer prices returned a rise of 2.2% for the month of January - lower than the previous month's 2.8%, still high enough to call for continued tightening bias.