China moves to cool its inflation

China's central bank has moved to cool inflation by raising the proportion of funds that the county's lenders must keep in reserve rather than lend out.

Aiming to cut the levels of yuan in circulation, the People's Bank of China is increasing the banking reserve ratio by half a percentage point to 13.5%.

To take effect from 29 November, it will be a record high for the reserve ratio, and the ninth rise this year.

China's inflation is near a 10-year high, driven by its booming economy.

Chinese inflation hit 6.5% in August, its highest level since 1997, before declining slightly to 6.2% in September.

October's data, which is out on Tuesday, is expected to show that inflation has risen again to 6.4%.

The central bank predicts the Chinese economy will grow at a breakneck 11% this year, as exports continue to surge.

China has also raised interest rates five times this year, another move to cool inflation.

The reserve ratio rise is a signal that the central bank is still in liquidity tightening mode and is very keen to control loan growth, said a trader at a European bank in Shanghai.

The new level of 13.5% suggests there is no ceiling, so the bank may raise reserve ratios again this year.

Source - BBC News