China lifts bank reserve ratio

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China stepped up moves to absorb the extra cash sloshing around its economy yesterday by raising the amount of money that lenders must keep on reserve for the third time in a month.

The decision to lift the reserve requirement ratio was expected following an array of strong economic data that was seen as supportive for those arguing that the economy may be overheating. Markets welcomed the 50 basis point increase, which leaves the ratio at 18.5 per cent. There were worries that, instead of raising the reserve ratio, the central bank might lift interest rates, thus adopting a tighter monetary stance and potentially dampening demand in one of the world's most important economies. Economists think that ratios could climb as high as 23 per cent in 2011.