China battles rising prices

Julian Harris
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FEARS over inflation in China stoked yet another rise in the amount that banks are forced to hand over as reserves yesterday.

The reserve ratio requirement (RRR) was hiked by 0.5 per cent to 20.5 per cent last night, to be effective from 21 April.

It marked the fourth 0.5 per cent increase in the RRR this year, and seventh since November.

Some economists expect the Chinese authorities to continue monetary tightening to offset excessive liquidity and stubbornly high inflation.

“The first-quarter GDP shows that the whole economy is good, so there is still space for tightening,” said Lin Songli, an economist with Guosen Securities in Beijing.

The rise came a day after central bank chief Zhou Xiaochuan said that tightening will stay on the agenda for “some time.”

And last week, Premier Wen Jiabao signaled a hawkish stance for the coming months, saying that the government would use all tools at its disposal to wrestle inflation under control.

The RRR hike will will lock up about 350bn yuan (£32.8bn) of cash that banks would otherwise be able to lend.