China Securities Journal reported that China is likely to raise bank reserve requirements in the near term to soak up excessive cash in the economy.

The paper said the yuan quickening appreciation and a widening interest rate spread with developed countries tend to attract more foreign capital inflows in the second quarter making it more difficult for the central bank to manage liquidity

The newspaper said "Considering the limited effectiveness of the open market operations, the possibility is fairly high for the central bank to raise reserve requirements in the near term."

The central bank has been raising bank reserve requirements six times since October with the latest increase on March 18 taking the reserve requirement ratio to a record 20% for the country big banks. In addition, the central bank has also raised interest rates four times since October to tame stubbornly high inflation.

Traders said the yuan hit a fresh trading high against the dollar on Wednesday as the People's Bank of China unleashed a new leg of yuan appreciation to help fight imported inflation.

The newspaper added that the central bank may also raise interest rates further this year to ward off a possible jump in inflation in the coming months. It added that "The central bank recently raised the yield of its one-year bills, indicating that interest rate rise has not come to an end."

(Sourced from China Securities Journal)