China's bank reserve ratio may increase

According to a report by ICBC (The Industrial and Commercial Bank of China) the reserve ratio required for commercial banks can reach 15% in 2008. Currently the ratio is 13.5%, which is a ten year high. More monetary tightening is expected to follow in order to curb the inflation and deal with rising Yuan. The ratio requirement has been increase nine time in this year and has crossed the previous highs of 13% observed during mid 1998. The reserve ratio hike will suck about $25 billion from the money market and reduce the surplus liquidity.

A good analysis on the tightening measures taken by Chinese central bank and its repercussions is done Lu Jianxin and is available with Reuters.