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China Raises Bank Deposit Ratio to Curb Excessive Lending


China's central bank has raised the percentage of funds banks have to keep on hand, in an effort to curb a surge in lending that the government says may spark inflation.

The People's Bank of China said Friday that, starting August 15, banks will have to keep 8.5 percent of their deposits in the central bank - an increase of half a percentage point.

The aim is to reduce the amount of money the banks can lend, and help cool down the overheated economy.

Stephen Green is senior economist for Standard Chartered Bank in Shanghai. He says this reserve ratio could rise as high as 10 percent, and he expects interest rates to rise, as well.

"All these things will have an effect. But, the long and short of it is that money is still flooding into China," he said. "And so, there's always fundamental pressure for asset prices, like home prices, to rise, and also for inflation to start to grow."

The rise in the reserve ratio is the second this year, and interest rates were raised in April. Still, Beijing announced Tuesday that the economy grew by almost 11 percent in the first half of this year, more than forecast.