China raised the reserve ratio for the nation's banks for a sixth time this year, just hours after announcing the highest inflation numbers in 34 months.
Tuesday's hike of 50 basis points raises to record highs the amount of deposits that Chinese banks must hold in reserve rather than lend out to consumers and businesses. The measure, which goes into effect June 20, is aimed at cooling the economy by taking about $59 billion out of China's banking system, said Qu Hongbin, co-head of Asian Economics Research for HSBC.
"Inflation, not growth, remains the top macro risk facing policymakers," Qu said.
China's consumer price index, the main gauge of inflation, grew 5.5% in May from a year earlier — the fastest pace since July 2008.
Rising prices for basics such as food, fuel and housing are squeezing the budgets of working families. Central policymakers appear determined to rein in inflation, considered one of the greatest threats to social stability, even at the risk of slowing China's economy.