Inflationary pressure may climb as China central bank urges flexibility in policies

09:28, June 19, 2010      

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China's central bank said Friday more flexibility would be allowed to guide money policies based upon changing circumstances if inflationary pressures increase during the economic recovery along with rising market confidence.

The risk of higher prices may grow stronger given that liquidity remains loose throughout the world and China has experienced much faster credit growth earlier, according to the Annual Report 2009 issued Friday by the central bank, the People's Bank of China (PBOC).

China's financial institutions lent a record 9.6 trillion yuan (1.4 trillion U.S. dollars) in new yuan-denominated loans last year, almost double that of the previous year, to spur the economy during the ongoing global downturn, but it was accompanied by soaring property prices and rising expectations of possible inflation.

China has targeted a total of 7.5 trillion yuan in new loans for 2010.

But prices were still very likely to remain stable as China's grain harvest has been substantial for a number of years, and manufacturers of consumer goods have been seeing rising productivity, which ensured supply, the central bank said.

China's Consumer Price Index, a main gauge of inflation, rose 3.1 percent in May, exceeding the government target to keep the nation's inflation rate under 3 percent for 2010.

National Bureau of Statistics spokesman Sheng Laiyun earlier said the higher inflation in May was due to a low comparison basis from the same period last year, and inflationary pressure was easing given that China had the basics for keeping prices under control.

However, the nation needed to safeguard the supply of sufficient agricultural products and curb soaring housing prices in some cities to manage inflationary expectations, according to the report.

Relatively relaxed monetary policy to remain
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