The People's Bank of China, the central bank, on April 17 ordered an increase to the ratio of deposits that commercial banks must set aside in reserve in a move to cool inflation. It was the fourth hike this year after six increases in 2010.

Commercial banks would have to set aside an additional 0.5 percent of their deposits in reserve, locking around 370 billion yuan ($56.5 billion) that they could otherwise lend.

A flood of liquidity is sloshing around the Chinese economy because of two years of heavy lending, leading to consumer price growth across the country. Rising global commodities prices are also fueling inflationary jitters.

Alongside hikes in the reserve requirement ratio, the central bank has also raised the benchmark interest rates four times since last October to battle persistent inflation.

UBS economist Wang Tao said a large amount of foreign exchange inflows in the first quarter added to excess liquidity, putting intense pressure on China's central bank to implement tightened controls.

Robust economic growth has left room for the country to tackle inflation, and more tightening measures are already on the way, said Lian Ping, chief economist of the Bank of Communications.

As a side effect, the tighter monetary environment will exacerbate capital strains on smaller enterprises, and put a dent in commercial banks' profitability, said Guo Tianyong, Director of the Research Center of China's Banking Industry under the Central University of Finance and Economics.