China banks ordered to increase reserves again

Banks must now hold back more of their deposits as reserves

China has ordered banks to increase their reserves for a second time this year, as lending is curbed in a bid to stop the country's economy overheating.

Analysts had expected the central bank to increase reserve levels again, but were surprised it ordered a second increase so soon after January's move.

The bank has told commercial lenders to hike their reserve levels by 0.5%, to 16.5%, by 25 February.

China's economy grew 10.7% in the final quarter of 2009 against a year earlier.

For the whole of last year, it expanded by 8.7%.

Further increases

"The central bank is sending out clear messages to banks that it wants more reasonable bank lending and it is paying close attention to inflation," said Xie Xuecheng at Southwest Securities in Beijing.

Figures published by the central bank on Thursday showed that last month's increase in reserves held by banks did little to rein in lending.

Lending by Chinese banks hit 1.4 trillion yuan ($205bn; £131bn) in January, one of the highest monthly totals on record.

This means further increases in bank reserves are likely, analysts said.

"The hike will still not fundamentally tighten liquidity too much and there will be more reserve hikes upcoming," said Shi Lei at the Bank of China.