China raises banks' reserve ratio by 50 basis points to 20 per cent

The People's Bank of China (PBC) today announced a 0.5 percentage point hike in banks' reserve requirements, beginning 25 March.

Today's hike takes the minimum reserve requirements of major banks in the country to 20 per cent. Small and medium banks will have to set aside 16.5 per cent of their total deposits as reserve.

This is the third time that the Chinese central bank is raising banks' reserve requirements and the ninth since the beginning of last year.

"The PBC has decided to raise the RMB reserve requirement ratio for depository financial institutions by 0.5 percentage points, effective 25 March 2011," the central bank said in a release.

PCB has been continuously soaking up liquidity since the beginning of last year in its bid to rein in inflation, which posed a threat to continued and steady economic growth.

Inflation rate in China, based on its consumer price index (CPI), rose 4.9 per cent in February, the same as in the previous month.