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BEIJING - China has raised reserve requirements for six large commercial banks on a temporary basis, a move to drain cash from the economy but avoid over-tightening, Reuters reported on Monday.
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In the limited nature of the increase, the central bank is trying to strike a balance between controlling liquidity and maintaining flexibility lest the economy lose momentum.
The People's Bank of China, the central bank, declined to comment.
Xu Biao, an economist with China Merchants Bank in Shenzhen, said that the central bank was worried that capital inflows could be on the rise in the wake of broader dollar weakness.
"The central bank has to take some pre-emptive moves to control asset prices and inflation risks," he said.
"On the other hand, the targeted and temporary move itself shows that the central bank is cautious about taking tightening steps. In other words, the central bank is reluctant to make any blanket tightening moves," Xu added.
Qing Wang, chief China economist at Morgan Stanley in Hong Kong, said the reserve increase also suggests that bank lending is on the rise again after a year in which Beijing has clamped down on their issuance of credit.
"I suspect September loan growth was strong. Hot money inflows have been rising. But I don't think this is a tightening move. It's just part of liquidity management," he said.
"It's also good for managing inflation expectations."