BEIJING, March 18: China’s central bank said on Tuesday it would increase the amount of money commercial banks must keep in reserve, just hours after Premier Wen Jiabao warned inflation was a top concern.

The People’s Bank of China said in a statement the bank reserve ratio would rise half a percentage point to 15.5 per cent from March 25, in yet another bid to implement tight monetary policies and cool the economy.

The rise is “to strengthen management of liquidity in the banking system and to guide the rational growth in money supply and credit,” the bank said.

Analysts said the move was likely a signal that China is serious about controlling price increases after Wen identified inflation control as a top priority for 2008.

“We need to ensure the fast yet steady economic development in the country and at the same time we need to effectively hold down inflation,” the premier said in an annual press conference following the end of parliament.

The reserve ratio hike, the second this year and the 12th since the beginning of 2007, reduces the amount of money flowing through the economy.

China’s inflation rate hit a near 12-year high of 8.7 per cent in February, while its economy expanded by 11.4 per cent in 2007.

The latest move will freeze 200 billion yuan in the banking system, according to estimates.

Analysts argued the fact that China’s monetary authorities decided to act first on the required reserve ratio could suggest an interest rate hike might now be a more distant prospect.

“The fact that the central bank decided to take the move on the required reserve ratio front at this moment indeed suggests lower risk of a near-term interest rate hike,” investment bank JP Morgan said in a research note.

It said it expected three interest rate hikes in the second half of 2008, but none in the near term. It also said the required reserve ratio could possibly rise to 17 per cent this year.—AFP