BEIJING: China's central bank said Friday it would raise the amount of money that banks are required to keep in reserve, the latest in a series of such hikes aimed at reining in high inflation. The bank reserve requirement ratio would be raised by 50 basis points beginning on Jan. 20, the People's Bank of China said in a statement. Ever fearful of inflation's potential to spark social unrest, Beijing has been pulling on a variety of levers to rein in consumer prices and calm growing anxiety about soaring food costs and property values. In December, the central bank hiked interest rates for the second time in less than three months. It also raised the reserve requirement ratio six times in 2010, a move that obliges lenders to keep more money in reserve, effectively limiting the amount of funds they can lend and thereby curbing the liquidity blamed for helping fuel inflation. Moreover, China's central bank Friday pledged to further relax restrictions on cross-border currency flows after a series of recent steps to ease controls and promote wider international use of the yuan. Beijing will also increase the flexibility of its yuan exchange rate and continue to push the opening-up of its financial markets, a senior People's Bank of China official said in a speech posted on the bank's website. Li Dongrong, assistant governor of the central bank, said emerging markets are facing increasing pressure from capital inflows, which pump up inflation and lead to asset bubbles. China will proceed with reforms to further the yuan's convertibility “in an orderly manner” and manage cross-border fund flows in a “balanced way,” he said. He gave no further details or timetable. The Chinese yuan is not fully convertible under the capital account, making it difficult to make cross-border investments, such as securities, for both domestic and foreign investors. Beijing has recently stepped up efforts to relax restrictions and increase overseas use of the yuan as it seeks to reduce China's exposure to the US dollar and allow its currency to take on a greater role worldwide. The central bank on Thursday launched a trial allowing Chinese firms to use yuan to finance new ventures, mergers and stake purchases overseas, a move seen as another step towards making the unit a global currency. Shanghai, the nation's financial hub, announced a trial program to allow select foreign private equity firms to convert foreign currency into yuan for investment in the country.
