BANKERS WELCOME SPANISH RESERVE REQUIREMENT HIKE Bankers welcomed the Bank of Spain's decision to raise the reserve requirement for banks and savings banks, saying it reflected the socialist government's determination not to ease up in the fight against inflation despite the painful social effects of four years of austerity. The central bank last night raised the requirement by one percentage point to 19 pct from March 13, saying that excess liquidity threatened money supply and inflation targets. Bankers said the move represented a change of tactic by the Bank, which until now has relied on raising interest rates to choke off money supply growth. "I think it's a good measure," a senior foreign banker said. "It's a faster way to get the job done than using interest rates and avoids unpleasant effects on other areas of the economy." "It shows that the political will is very strong. They know that controlling inflation will make industry more competitive and bring down unemployment in the long run," he added. The head of another foreign bank said that only a month ago, the Bank of Spain had dismissed his suggestion of a rise in reserve requirements, preferring to pursue its strategy of raising interest rates. But bankers said the high real interest rates on offer now -- around eight pct for overnight funds -- was attracting money from abroad, strengthening the peseta and making Spanish exports less competitive. The government says industry's competitiveness is also being hit hard by inflation. At 8.3 pct last year, the rate was way above that of Spain's major trading partners in the European Community, which it joined a year ago. To help meet this year's target of five pct, it is insisting pay rises stay at that level, setting the stage for clashes with trade unions, who say they have made enough sacrifices. Demonstrations by workers, students and farmers, whose demands essentially involve more government spending, have become an almost daily occurrence. But Prime Minister Felipe Gonzalez insists that the state is doing as much as it can. Bankers said the reserve requirement increase could have some impact on commercial lending rates but should not hit the money market too hard. The Bank of Spain, which only yesterday raised its key overnight call money rate to 13.5 pct, left it unchanged at today's auction. The rate has been increased nine times since the start of the year, when it was below 12 pct. Bankers said commercial lending rates were set to rise in any case with the end of the six pct maximium interest rate banks can offer for time deposits of up to six months. The measure will take effect tomorrow, following the publication of the decree in today's official gazette. Bankers say the liberalisation will increase the cost of funds and, inevitably, push lending rates higher. A companion measure, reducing the proportion of funds which banks must invest in specific areas, also takes effect tomorrow. Officials said when the cut was approved last month that it was aimed partly at compensating banks for higher interest rates.