Chinese central bank to raise reserve requirement ratio by 50 basis points

China's central bank announced on Wednesday that it will raise the required reserve ratio for commercial banks by 50 basis points as of Jan. 25.

The ratio would be raised to 15 percent, the highest since 1984. This is the first time the People's Bank of China (PBC) raised the reserve ratio this year.

The PBC said in a statement that the adjustment, as a part of its stringent monetary policy, is to draw back excess liquidity at banks and curb the overly fast growth of credits.

Excess liquidity is a major challenge for the Chinese government as it could result in asset bubbles and economic overheating. The problem becomes more prominent as the record trade surplus pumps more cash into the country.

China's foreign exchange reserve had reached 1.53 trillion U.S. dollars by the end of 2007, up 43.3 percent from 2006, with a total of 461.9 billion U.S. dollars added to the country's forex reserve in 2007, said the PBC last week.

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