China Raises Reserve Ratios Despite Slowing Economy

China announced Thursday that it was raising its reserve requirement ratio (RRR) once again, despite indications that its economy was slowing down. Inflation is still rising and the central bank is focusing on that, hoping to forestall possible civil unrest that could result from too much of an increase in the prices of such essentials as food.

Reuters reported that the RRR was increased by 50 basis points to a record 21%, and the increase will take effect on May 18, according to the central bank's website. The increase is the eighth since October, and follows Wednesday's report that April's inflation figure came in at 5.3%, considerably higher than the Chinese government's target of an average of 4% for the year.

The central bank took the action despite additional data that showed an unexpected and considerable slowing in the Chinese economy, with factory output down more than was expected. It also sold 40 billion yuan ($6.2 billion) of 3-year bills on the open market on Thursday to absorb as much excess cash as possible and prevent it from contributing to additional inflation.