China raises bank reserve requirements to cool inflation

China raised banks’ reserve requirements for the third time this year, judging that inflation remains a bigger threat to the world’s second-largest economy than Japan’s earthquake and nuclear crisis.

The proportion of lenders’ deposits that must be parked with the central bank will increase half a percentage point from March 25, the People’s Bank of China said on its website on Friday. The requirement will rise to 20 per cent for the nation’s biggest banks, excluding any extra limits for individual lenders.

Premier Wen Jiabao has set taming inflation as the nation’s top economic priority this year, citing “exorbitant” house- price increases and risks to social stability. China follows India, which yesterday raised interest rates, in tightening monetary policy even after Japan’s crisis roiled global stock markets and threatened to disrupt supply chains across Asia.

“This move, coming after the Indian rate hike yesterday, is another sign that the tragic events in Japan are unlikely to have a significant impact on policy decisions elsewhere in Asia,” said Brian Jackson, an emerging-markets strategist at Royal Bank of Canada in Hong Kong. “Uncomfortably strong inflation throughout the region suggests that more policy action is required.”

The move may lock up about 350 billion yuan ($53 billion), according to Australia & New Zealand Banking Group.