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Reserve ratio raised to curb liquidity
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China's central bank on Wednesday ordered banks to set aside more money as reserve, the third such move this year, in the latest effort to curb excess liquidity and ease inflation.

The reserve requirement ratio would be raised by 0.5 percentage points to a record high of 16 percent as of April 25, the People's Bank of China (PBOC) said in a statement on its website.

"The rise, a further materialization of tight monetary policy, is aimed at strengthening liquidity management in the banking system and steering bank credits to grow reasonably," the PBOC stated.

The tightening measure was unveiled just two and a half hours after the release of first quarter economic data showing inflation surged 8 percent, although it eased to 8.3 percent in March from the 12-year-high of 8.7 percent in February.

"An increase in the reserve ratio by a small margin will help to stabilize inflation expectations, while maintaining stable economy growth," said Peng Xingyun, a finance researcher at the Chinese Academy of Social Sciences.

The PBOC earlier raised the reserve requirement on January 25 and again on March 25, on top of ten such moves in 2007. It also raised interest rates six times last year.

(Xinhua News Agency April 17, 2008)

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