China raises required reserves as inflation fight intensifies

China continues to struggle with the consequences of large sums of capital flowing into its banking system. Its soft peg to the U.S. dollar and other western currencies means adoption of western monetary policies such as quantitative easing. China’s small incremental increases in margin requirements relative to size and scope of the quantitative easing undertaken in the west can only be characterized as trying hold back failure of the Hoover dam by plugging the leaks with fingers.

China ordered lenders on Friday to lock up more of their money with the central bank for the second time in two weeks, stepping up its battle to pull excess cash out of the economy before inflation has a chance to take off.

The People's Bank of China said that it would increase banks' required reserves by 50 basis points, its fifth such announcement this year. Including a temporary increase, the move takes required reserve ratios (RRR) to 18.5 percent for big banks, a record high.