The People's Bank of China (PBC) on Monday ordered commercial banks to further cut back on lending, following last Friday's move that requires them to keep more reserves at the central bank.

The central bank needed to tighten up the banking system's liquidity management, further curb the excessive growth of money and credit, and continue to guide commercial banks on controlling the size of medium- and long-term loans, said the bank directive.

The PBOC raised China's benchmark lending rates by 27 basis points in late April, but the economy has shown no signs of slowing from its 10.3 percent growth rate in the first quarter, according to the May economic data.

Chinese banks extended 209.4 billion yuan (US$26.1 billion) worth of local currency loans in May alone, nearly double that of the same month last year, the PBOC said.

The PBOC on Friday announced it was increasing the reserve ratio for commercial banks by 0.5 percentage points from July 5.

The move will bring the reserves that most banks are required to keep on deposit with the central bank to 8 percent, taking about 150 billion yuan in funds out of circulation.

The PBOC directive, issued after a quarterly meeting held by the bank's monetary committee, said macro-policies should be coordinated in an effort to "actively expand consumer spending, optimize the investment structure and rein in the already fast growth of investment".

(Xinhua News Agency June 20, 2006)