China raises bank reserves to cool inflation

AP News
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Posted: May 12, 2011 7:08 AM

China ordered most of its banks on Thursday to increase the amount of money they hold in reserves in a new move to curb inflation after higher-than-expected price rises in April.

The central bank's order was the fifth reserve increase this year and came a day after the government reported April inflation was 5.3 percent.

Stubbornly high inflation has frustrated communist leaders who have declared taming surging living costs their priority this year. They have raised interest rates four times since October and ordered companies to restrain price rises.

The People's Bank of China ordered most banks to increase reserves by 0.5 percent of their deposits as of next Wednesday. That will raise reserves for the biggest institutions to 21 percent of deposits.

Economists blame China's inflation spike on strong consumer demand that is outstripping food supplies and a flood of bank lending that was part of Beijing's stimulus following the 2008 global crisis.

China's savings are rising so fast that economists regard increases in reserve levels and interest rates as only a signal to institutions to cut back lending.

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People's Bank of China (in Chinese): http://www.pbc.gov.cn