BizNomic

In an effort to curb lending and put a limit to inflation, China, for the second time in the last 5 weeks, has increased the banks’ reserve requirement ratio, which the ratio of the money to be kept with the central bank, which cannot be lent out to consumers and earns very little interest. This effectively means that commercial banks have lesser money to lend out to customers.

The People’s Bank Of China, the Central Bank, has pushed up the ratio by half a percentage point, to 16.5% for large banks (with effect from February25). However, it remains unchanged at 14% for smaller financial institutions.

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