China hikes reserve ratio on banks

China's central bank says it's raising banks' reserve requirement ratio by 0.5 percentage points from January 18th. The move aims to head off the country's increasing inflationary pressures. It's also the clearest sign so far that the central bank has begun to tighten its monetary policy.

The People's Bank of China is raising the reserve rate ratio much earlier than the market expected.

It now stands at 16 percent. The hike will apply to all banks apart from rural credit cooperatives.

It's the first time that the central bank has adjusted the amount of deposits that commercial banks must keep on reserve, since it lowered the ratio in December 2008 as part of its monetary relaxation at the time.

Analysts say the adjustment indicates the central bank's concerns over excessive liquidity.

A key publication sponsored by the Xinhua News Agency said on Monday that China's bank loans totaled 600 billion yuan during the first week of this year. This has fueled concerns over inflation.

However, analysts say the reserve ratio hike should not be viewed as a complete change in China's monetary policy stance.

Some expect an interest rate rise to be the next move. But others think the central bank will keep the interest rate stable until the Consumer Price Index moves beyond a comfortable zone.