By Xin Zhiming (China Daily)
Updated: 2008-06-09 07:27

The central bank announced on Saturday an increase in the amount lenders must hold in reserve by a full percentage point, which analysts said indicates the liquidity problem is still serious.

After the hike, which will be implemented in two steps, one on June 15 and another on June 25, each by half a percentage point, banks' reserve requirement ratio will reach 17.5 percent.

The move shows that the authorities will maintain the current tight monetary policy despite the massive earthquake that hit Sichuan and neighboring regions on May 12, said Peng Xingyun, economist with the Chinese Academy of Social Sciences.

An earlier report of the central bank's reserve unit said the earthquake would not affect the general growth track of the national economy, indicating the existing economic policies would continue.

The earthquake-hit regions will be exempt from the hikes, the central bank said.

It was the fifth increase in the ratio this year but the first time since December the hike was more than half a percentage point.

The central bank said on its website that the move is taken "to strengthen liquidity management".

The country's stockpile of foreign exchange reserves reportedly had already surged to $1.757 trillion by the end of March and increased by a record $74.5 billion in April alone. The April increase was about $50 billion more than the country's trade surplus and inflow of foreign direct investment combined in the same month.

The raising of the reserve requirement ratio would help mop up the liquidity in the market and ease China's inflation concerns, analysts said.

In April, the consumer price index, the main inflation gauge, rose by 8.5 percent year on year, the second 12-year highest after the 8.7 percent growth in February.

(China Daily 06/09/2008 page2)