China Locks Up More Cash as Prices Keep Rising

There will be a little less money to go around in China starting later this week.

China's government is worried about rising prices and is tightening its grip on the country's cash. In the latest step, the country's banking authorities have told banks that they must raise the amount they set aside in their reserves, effectively reducing lending.

The nation's largest banks must now hold on to 20.5 percent of their cash, a boost of half a percentage point.

Several days ago, price watchers received somewhat startling news, as a key basket of prices of goods and services rose sharply.

The Consumer Price Index in China rose 5.4 percent in March, compared to the same period a year ago.

How long this process will continue is uncertain, but the governor of China's central bank said monetary tightening will continue for some time. China has been boosting banks' reserve ratio multiple times over the past year.

On April 6, the bank made borrowing money slightly more expensive. However it was the fourth time in six months it did so. The one-year lending rate climbed to 6.31 percent, from 6.06 percent. That move came after the CPI rose 4.9 percent in February, compared to the same period last year.

China's leaders have been sounding warning signals to assuage worried financiers that the government has the rising prices problem under control.

Chinese Premier Wen Jiabao said last month compared inflation to a tiger.

Once it gets free, it is difficult to put it back in the cage.