Feb. 21, 2007 (China Knowledge) – China’s central bank ordered banks to set aside more money as reserves for the fifth time in eight months to cool inflation and investment in the world's fastest-growing major economy.

The reserve ratio - the amount of money a bank must hold at the central bank - will increase 0.5 percentage points to 10% on RMB deposits starting on February 25, the People's Bank of China announced Friday.

Central bank Governor Zhou Xiaochuan is concerned that cash from a record trade surplus is stoking excess investment, raising the risk that inflation will accelerate from 2.2% in January.

This moderate increase shows that the People's Bank of China (PBC) had shied away from using drastic moves to absorb liquidity as the country's consumer price index, the measure for inflation, grew by only 2.2% in January, down 0.6 percentage points from the previous month, observers said.

The reserve ratio hike was made to deal with "dynamic currency liquidity changes and to consolidate macro-economic controls", said the central bank in its latest statement.

Analysts predict that the central bank will raise the requirement a few more times this year.