China has increased the amount banks must set aside as reserves in the clearest sign yet that the central bank is trying to tighten monetary conditions amid mounting concerns of overheating and inflation as a result of the credit boom.
The People's Bank of China also raised interest rates modestly in the inter-bank market yesterday for the second time in less than a week, as it engages with commercial banks in a tug-of-war over rapid lending.
Economists said that yesterday's announcements were a warning to the banks against lending too aggressively following reports in state media that loans in the first week of 2010 reached Rmb600bn ($88bn), not far short of the monthly average last year.
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