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Bank Reserve Ratio Raised to 16%

The central bank announced on Wednesday that the amount of money lenders must hold in reserve will be raised by half a percentage point, pushing the reserve requirement ratio to a record 16 percent.

It was the third time this year that the authorities have taken such a measure to ease liquidity-induced inflation growth, which was 8.3 percent in March, slightly lower than the 12-year high of 8.7 percent in February. Last year, it raised the ratio 10 times.

The hike will take effect on April 25, the People's Bank of China said in a statement.

Goldman Sachs (Asia) said in a research note that the hike, announced shortly after the release of first-quarter economic data, demonstrates the central bank's tightening stance despite moderating inflation in March.

The investment bank said it maintains its previous view that small-scale hikes to the ratio are not sufficient to control monetary expansion and inflation because they are not adequately binding on banks' lending capability.

"We expect the central bank to implement further tightening measures including regular hikes to the reserve requirement, two hikes to benchmark interest rates and continued credit rationing in commercial lending."

(China Daily April 17, 2008)

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