China ordered state-owned banks to limit lending as it moves to control inflation and prevent a credit bubble.
The Chinese government told the six largest state-owned banks to increase their reserves to 17.5% of deposits from 17%, The Associated Press reported.
State-owned banks were previously told to step up lending in a bid to stimulate the economy. The economy grew at an annual rate of 10. 3% in the second quarter, and policy makers have grown concerned about easy credit fuelling inflation and a real estate bubble.
Inflation hit an annual rate of 3.5% in August and probably rose higher in September.
The reserve hike is "a clear signal to commercial banks that the central bank is willing to take actions to control lending" Goldman Sachs economists wrote in a report.
The increase in reserve requirements would take about 200 billion yuan ($29.55 billion) out of lending pool, the economists said.
The banks in question are Industrial & Commercial Bank of China Ltd, Bank of China Ltd, China Construction Bank Ltd and Agricultural Bank of China Ltd, China Merchants Bank Ltd and China Minsheng Bank Ltd.