Seventh hike in 12 months for reserve ratio

The People's Bank of China (PBOC) raised the reserve ratio requirement for domestic lenders Sunday to soak up excess liquidity in the economy, the Wall Street Journal . The move, which will see most banks' reserve ratios go up 0.5 percentage points to 11% from May 15, is the seventh in the last 12 months. Many economists had predicted the increase ahead of the May holiday and further tightening measures – such as an interest rate hike – are expected in the coming weeks to combat rising inflation. The consumer price index rose 3.3% in March and 2.7% year-on-year in the first quarter. Increasing the reserve ratio means banks must store more money with the PBOC and so have fewer funds to lend out to new investment projects. BNP Paribas economist Isaac Meng expects the reserve ration to hit 12-13% by the end of the year.