The market had expected the central bank would refrain from implementing the hike before the Chinese New Year in mid-February.
China’s central bank announced Tuesday it would increase the reserve requirement ratio for commercial banks as the government seeks to guard against possible economic overheating.
The People’s Bank of China (PBC) said in a notice on its website that the deposit reserve ratio would be hiked by 50 basis points.
The ratio is the minimum amount of money that banks must keep in reserve and not use for lending or other purposes.
The central bank said the increase will take effect Monday. It will be the first hike in the deposit reserve ratio for commercial banks since June 2008.
Bank of America Merrill Lynch economist Lu Ting said the rise in the reserve ratio would drain about 250 billion yuan ($36.7 billion) from the banking system.
Lu Zhengwei, a senior economist at the Industrial Bank, said the hike came earlier than was expected and will intensify expectations of further policy tightening.
The market had expected the central bank would refrain from implementing the hike before the Chinese New Year in mid-February.
Merrill said the news would be interpreted as the turning point of a changing policy stance and expected the commodity and stock markets to initially respond negatively.
The announcement is the latest sign that the government is moving to rein in an explo-sion in new lending that has raised fears of inflation, economic overheating and a possible rash of bad loans.
Lu of the Industrial Bank said the PBC would increase the reserve two to three times more and predicted the central bank would start hiking interest rates in the second quarter of 2010.
The PBC Tuesday also raised the interest rate on its one-year treasury bills by eight basis points to a yield of 1.8434, the first hike since August.
That followed a move Thursday in which the central bank raised the interest rate on its three-month treasury bills.
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