Economy

China hikes reserve requirement ratio again

(Xinhua)
Updated: 2011-06-14 16:01

BEIJING --?China's central bank said on Tuesday it would raise the bank's required reserve ratio (RRR) by 50 points from June 20.

It means banks have to set aside 21.5 percent of their capital in reserve, a record high. Analysts estimate the latest increase will freeze capital worth about 370 billion yuan ($56.92 billion) to check liquidity and ease the stubbornly high inflation.

The sixth such increase this year came as the National Bureau of Statistics (NBS) reported a 5.5-percent increase of the consumer price index (CPI) in May, a 34-month high.

"Excess money supply is the main reason behind the high CPI reading;therefore, the RRR increase will work to prevent further price increases," said Yang Ruilong, a economic professor with the Renmin University.

To soak up liquidity, the People's Bank of China (PBOC) has raised the RRR once a month over the past six months. It also twice hiked the benchmark lending and deposit rates.

The government will continue to prioritize easing prices in its macro regulation, since the pressure from price increases remain hefty, NBS spokesman Sheng Laiyun said at a press conference on Tuesday.