China raises bank reserve ratio to combat inflation

March 18th, 2008 - 9:44 pm ICT by admin  

Beijing, March 18 (Xinhua) Hours after Prime Minister Wen Jiabao said his government would take steps to control soaring inflation, China’s central bank Tuesday raised the deposit reserve ratio of commercial banks from 15 percent to 15.5 percent. The increase of cash reserve that commercial banks keep with the central bank was second such move this year, and will take effect from March 25.

The move was to further regulate liquidity and allow bank loans to increase in a reasonable way, said a statement on the website of the People’s Bank of China (PBOC).

In a press conference here, the Chinese premier admitted that the task of holding down inflation was “difficult”, but the government would tackle it with forceful measures.

“The current price rise and increasing inflationary pressure are the biggest concern of the people,” Wen said while presenting a report to the National People’s Congress.

China’s inflation rate has continued to accelerate, with the consumer price index (CPI) increasing 8.7 percent in February year-on-year. This is the biggest jump in nearly 12 years that posed greater challenges for a country already bothered by excess liquidity.

Wen acknowledged that it will be hard for China to hold the price line at about 4.8 percent. The worst sleet and snow in decades in the first two months of this year have made the job even more difficult, he said.

Yi Gang, vice-governor of PBOC said earlier that China’s top task is to combat inflation in 2008, and tight monetary policy wouldn’t be changed despite the impact of the subprime crisis and heavy snow.

In its bid to contain rising inflation, the central bank has raised the reserve requirements 12 times and the interest rates six times since last year.

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