The central bank is raising the proportion of deposits commercial banks must keep in reserve to a record high of 13.5 percent, in a bid to curb an overheating economy and rising inflation.
The 0.5 percentage point rise in banks' reserve ratios, the ninth increase this year, takes effect on November 26, the People's Bank of China said on Saturday.
The move is aimed at "strengthening liquidity management in the banking system and preventing credit from growing too fast", the bank stated on its website.
Analysts said the hike is expected to remove about 200 billion yuan ($27 billion) from the financial system.
The central bank has said it would be reining in excess liquidity. "(We) will use combined sterilization measures to further manage liquidity," the bank stated in its third-quarter monetary policy report released last Thursday.
Analysts have said the liquidity boom in the domestic market has pushed up the value of assets and contributed to rising prices.
In its quarterly report, the central bank said inflation will accelerate to about 4.5 percent this year from 1.5 percent last year, citing stronger inflation expectations and pressure from food, energy and labor costs.
Inflation of 6.2 percent in September was close to a decade high because of food-price gains. The rate exceeds the return on bank deposits and sees households putting savings in stocks and real estate.
The country's trade surplus has also been seen as contributing to bulging liquidity - trade surplus jumped 56 percent in September from a year earlier, taking it to $185.7 billion for the first nine months, more than the $177.5 billion record for all of last year.
The hike in the reserve requirement ratio this time, however, is not adequate in restraining liquidity and may be further increased in the coming months, analysts said.
It may be raised again before the year end and may reach 15 percent next year, said an economist with the Shanghai-based Shenyin and Wanguo Securities, Li Huiyong.
The financial research institute under the Industrial and Commercial Bank of China also expected the reserve requirements to be raised to 15 percent next year.
The central bank is considering other measures to address rising liquidity. It reported that although the trade surplus is a major contributor to the problem, some fundamental restructuring is required.
"Simply tightening liquidity and credit will not help," the report said. It suggested speeding up restructuring where consumption can play a major role in economic growth, rather than have it driven mainly by investment and exports.
Source: China Daily/Agencies
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