China extends special RRR hike after inflation hits 5.1 percent

In response to swelling inflationary pressures, China extended a special reserve requirement ratio (RRR) hike for six of the country's largest banks, according to Reuters who cited industry sources.

Back in October, officials temporarily raised the reserve requirement ratios for China Merchants Bank, China Minsheng Banking Corp, Industrial & Commercial Bank of China, China Construction Bank, Bank of China, and Agricultural Bank of China by 50 basis points for 2 months.

This temporarily rate hike for those six banks, set to expire this week, will now be extended for 3 additional months.

Combined with December 10's 50-basis point RRR hike for all banks, the extension of the temporary RRR increase takes the reserve ratio to a record-high 19 percent for China' biggest banks.

Reuters said this special extension locks up about $27 billion in deposits that the banks would otherwise have available to lend.

Recently, China has been stepping up monetary tightening in response to growing inflationary pressures, which year-on-year hit 4.5 percent in October and accelerated to 5.1 percent in November.

China seeks to maintain inflation of 3 percent year-over-year.

While many Western economies tend to rely on market-oriented policies like changing interest rates to control inflation, China has relied more on bank-specific policies like raising reserve requirement ratios and adjusting loan quotas.

It raised interest rates once this year but has hiked the reserve requirement ratio six times already.

Earlier in December, Chinese policymakers said they would shift monetary policy from the current stance of relatively loose to prudent in 2011.

Email Hao Li at hao.li@ibtimes.com.