China tightens monetary policy; reserve ratio 13.5-pct

BEIJING, Nov 10, 2007 (AFP) – China’s central bank announced Saturday that it would raise the reserve ratio requirement for banking institutes by half a percentage point to 13.5 percent as of November 26. Despite repeated measures to cool growth largely driven by excess cash in circulation, China’s economy expanded by 11.9 percent in the second quarter after registering 11.1 percent growth in 2006. The People’s Bank of China made the move “in order to strengthen the management of liquidity in the banking system and curb the excessive growth of credit,” it said in a statement on its website.

The hike follows a similar half percentage increase in the reserve ratio on October 25. Saturday’s move will be the ninth such time the bank has raised the reserve ratio this year.

The hike comes amid widespread expectations that the bank will raise interest rates after it forecast Thursday that China’s economy would grow at a blistering pace of over 11 percent this year, while inflation would rise by 4.5 percent in 2007.

The reserve ratio requirement is the amount of money that commercial banks must hold in reserve. By raising the requirement, the bank is hoping to sop up excess liquidity that is fuelling