EXCERPTS:
"BEIJING—China moved again to head off inflation by requiring banks to hold more of their deposits in reserve, the eighth such move since November, despite little evidence that the measure is taming prices, and worries that it is depriving needy smaller companies of capital.
The 0.5-percentage-point increase in the reserve requirement ratio was announced Thursday, a day after China reported annual inflation hit 5.3% in April, with food prices galloping at 11.5%, the sixth straight month in which food prices have risen at double-digit rates.
The inflation figures were slightly lower than in March, but still represented a significant risk that the authorities haven't put a lid on inflationary pressures. And there were other worrying signs: A higher number of bank loans than expected in April, at $112 billion, and a wider-than-expected trade surplus of $11.4 billion, up from $139 million in March, meant more cash flooding into the economy, increasing the need to soak up liquidity.
Unlike most major economies, China uses reserve requirements as its first line of defense against inflation, figuring the tool will make it tougher for banks to lend and thus cool an overheating economy.
When the move takes effect on May 18, China's largest banks will face a 21% reserve requirement, among the highest in the world. By comparison, the U.S. reserve requirement is 10%.
