By Bloomberg News Jan. 12 (Bloomberg) -- China raised the proportion of deposits that banks must set aside as reserves to cool the world’s fastest-growing major economy as a credit boom threatens to stoke inflation and create asset bubbles. Reserve requirements will increase by 50 basis points from Jan. 18, the central bank said on its Web site this evening. The existing levels are 15.5 percent for big banks and 13.5 percent for smaller ones. Chinese lenders added a record 9.21 trillion yuan ($1.3 trillion) of loans in the first 11 months of 2009, driving an economic rebound after the global financial crisis slashed exports. Credit growth surged last week, local media reported yesterday, and the cabinet said Jan. 10 that the nation is on guard against inflows of speculative capital that may stoke price gains. Policy makers “are following through on their pledge to guide credit in order to pre-empt rising inflation and avoid asset-price bubbles,” said Jing Ulrich, chairwoman of China equities and commodities at JPMorgan Chase & Co. in Hong Kong. The increase, the first since June 2008, excludes “small financial institutions such as rural cooperatives” to aid rural production, the central bank said. It didn’t specifically refer to ratio levels for smaller banks. Interest-Rate Speculation China’s central bank also sold bills at a higher yield for the second time in a week today, fueling speculation that policy makers will raise the benchmark interest rate in the first half of the year. BNP Paribas SA brought forward its forecast for higher interest rates to the second quarter from the third. Banks lent about 100 billion yuan ($14.6 billion) each day last week, the official China Securities Journal reported. That compares with 294.8 billion yuan for all of November. December data is yet to be released. While Chinese lending is typically biggest at the start of each year, the central bank said last week that it is aiming for “moderate” credit growth in 2010 after a record 9.21 trillion yuan of loans in the first 11 months of 2009. Economists are ratcheting up 2010 inflation forecasts for China. Citic Securities Co., the nation’s biggest listed brokerage, raised its estimate to 3.2 percent from 2.6 percent in a report dated yesterday. Bank of America Merrill Lynch last week increased its forecast to 3.1 percent from 2.5 percent. Premier Wen Jiabao pledged Dec. 27 to curb excessive property-price gains in some parts of China after the biggest nationwide increase in 16 months in November. “Monetary policy is being gradually tightened as China faces very significant inflationary pressure and credit growth that is too fast,” Isaac Meng, senior economist at BNP Paribas in Beijing, said before the reserve-requirement increase. He said the central bank may initially raise interest rates by 27 basis points. China’s benchmark one-year lending rate is at a five-year low of 5.31 percent. To contact the reporter on this story: Paul Panckhurst in Beijing at ppanckhurst@bloomberg.net

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