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SHANGHAI:  China's central bank has ordered some small and medium-sized banks to raise their reserves in the latest in a series of such hikes aimed at reining in inflation, state media said Friday.

The reserve requirement ratio hike, which effectively reduces the amount of money banks can lend, is mainly targeted at regional institutions, the state-run China Securities Journal reported, citing unnamed sources.

The increase took effect this week, the report said without naming the affected banks or specifying the size of the hike.

China has yet to announce an official lending target for this year, but it has enlisted various monetary tools to tame credit growth and inflation.

The People's Bank of China raised interest rates for the third time in four months on Tuesday. It also increased the bank reserve requirement ratio by half a percentage point in January, its seventh hike since the start of last year.

Friday's report said inflationary pressure meant China would likely continue monetary tightening in the first quarter, and the central bank would use differentiated reserve requirements to manage individual banks' loan growth.

The central bank said on January 26 that differentiated reserve ratios were "a more transparent and regulated way to guide stable and appropriate credit growth in financial institutions".

China's consumer price index, a key measure of inflation, rose 4.6 percent from a year earlier in December, down from 5.1 percent in November, which was the fastest rate in more than two years.

The government is due to release January's inflation data around February 15, and analysts widely expect the reading rose more than five percent last month partly due to increased demand ahead of the Lunar New Year holiday.

Higher food costs also likely fanned inflation as extremely dry conditions across northern China damaged wheat and other crops.

Chinese banks tend to lend more at the start of each year to maintain or expand their share of the credit market.

The newspaper said Chinese banks issued more than 1.2 trillion yuan ($182.2 billion) in new yuan loans in January, down from the 1.4 trillion yuan in January last year.

Copyright AFP (Agence France-Presse), 2011 

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