Mumbai: China's central bank has raised reserve requirements for banks from the current nine per cent to 9.5 per cent starting January 15, to prevent a rebound in lending and investment in the world's fastest- growing economy.

This is the fourth time in seven months that the Beijing-based People's Bank of China is asking banks to set aside more money as reserves. The hike in reserves ordered by the central bank governor Zhou Xiaochuan will cut the amount of money available with the banks for lending.

The move comes after government curbs slowed economic growth to what the central bank governor himself called a ``reasonable'' rate.

China raised interest rates twice last year to prevent excess funds generated by a record trade surplus from being channeled through bank lending into investment projects.

Analysts expect the central bank to raise interest rates mid-year again.

The central bank on 14 November, 2006, had warned that growth in fixed-asset investment, which has cooled since June, could rebound and vowed to continue to drain cash from the banking system.

``Various measures taken by the central bank since 2006 have achieved some results in slowing down lending growth in the past few months,'' the People's Bank said, adding, ``However, there is a new increase of excessive liquidity in the banking system as a result of the continuing trade surplus and there is rising pressure for loans to increase.''

The central bank will "continue prudent monetary policy" and "direct a reasonable lending growth to ensure economic growth,'' it added. (See:)

The central bank also intervenes in the market directly through sale of treasury bills to commercial banks to remove excess liquidity in the financial system.

Deposits with China's banks stood at 33.4 trillion yuan ($4.28 trillion) as of end-November, up 17.2 per cent from a year earlier. The central bank expects a 150 million yuan reduction in the amount available for lending with banks with every 0.5 percentage point increase in the reserve requirement.

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