China raises reserve requirement again

By Aaron Smith, staff writer


NEW YORK (CNNMoney.com) -- The People's Bank of China raised the reserve requirement ratio for its banks by a half-percentage point on Friday in an attempt to control the flow of new money and combat inflation.

China's increase is the second such move in days. The central bank also increased the reserve requirement ratio by 50 basis points on Nov. 10.

But China's central bank didn't touch interest rates. There has been much speculation around the world about a possible rate hike by China, and that has some investors on edge.

The reserve ratio increases are one method China can use to keep its strong economy from overheating.

But China's tightening comes as the Federal Reserve plans for more quantitative easing. The Fed plans to inject money into the economy by buying $600 billion in long-term Treasuries over the next eight months.

The Fed's plan has been attacked by many politicians and economists as a program that effectively undermines the value of the dollar. At the same time, U.S. officials have also been critical of China for keeping its own currency, the yuan, artificially low.  To top of page

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