CHINA'S increase in bank reserve requirements was aimed at taming liquidity and inflationary expectations, Vice Finance Minister Li Yong said yesterday.

Speaking at an Asian Development Bank meeting in the Uzbek capital of Tashkent, Li underlined China's stance on the yuan exchange rate, saying his government wanted to keep the currency stable but continue with reforms.

"We will continue to improve the yuan exchange rate formation mechanism and also maintain its stability at an appropriate and balanced level," Li said.

His speech, coming after the People's Bank of China lifted bank reserve ratios, underscored how China seeks to balance policy stability with efforts to counter inflationary pressures and a surge in bank credit.

The central bank said on Sunday that it was lifting lenders' reserve requirement ratio by 50 basis points, effective on May 10, its third increase of that magnitude this year.

That will take the bank reserve ratio for big lenders to 17 percent.

The move could fuel speculation that officials are preparing for an influx of capital in anticipation of a decision to let the yuan resume its climb, stalled since July 2008.

But Li said the reserve ratio increase was "about proper liquidity management."

Excessive bank lending would lead to upward pressure on inflation and asset prices, and China would apply instruments in a flexible manner, Li said.

"As for inflationary expectations and inflation, we are trying to manage them properly, particularly this year," he said.

Chinese consumer prices rose 2.4 percent in the year to March, outstripping the 2.25 percent rate on one-year certificates of deposit.

But Li stopped well short of any indication of a major policy shift as China pulls further out of the global financial crisis, and said the government would keep to an "appropriately easy" monetary policy.

"We will not change the whole policy, the monetary policy because it will cause so much disturbance for the whole economy," he said.

"We will continue to implement the moderately easy monetary policy and ensure sufficient money supply and bank credit."

Stock markets on China's mainland were closed for the May Day holiday yesterday but shares in major Chinese banks fell in Hong Kong following the rise in bank reserve requirements.

Li said that China would try to seek a delicate balance between growth and inflation this year.