2010-08-06 09:42

BEIJING - China's central bank said on Thursday that the country would continue to experience stable and sustainable growth in the second half, but warned that inflationary pressures continue to exist.

"The Chinese economy will grow steadily following its rapid recovery but we should not neglect upward inflationary risk, as loosened monetary conditions across the world have prompted international capital to look for (investment) outlets," the People's Bank of China (PBOC) said in its monetary policy report for the second quarter.

"Domestically, rising costs for labor and environmental protection as well as the ongoing reform of the resource pricing mechanism will all affect inflation," the report said.

However, the stable price of primary products in the international market, the country's current sufficient production capacity and the drop in money supply growth will provide opportunities for controlling the price level, it said.

China's Consumer Price Index (CPI), a major gauge of inflation, eased to 2.9 percent in June from the 3.1 percent a month ago on falling food prices and subdued non-food inflation. That has put the country's CPI for the first half at 2.6 percent year-on-year.

"We expect CPI to climb to above 3 percent in the coming months on the renewed pressure on food prices," said Wang Tao, chief China economist at the UBS Securities.

Inflationary pressure for food, which accounts for about a third of the weighting basket for the index, is regarded as a major target for inflationary control this year.

"However, as the government delays energy price adjustments and keeps credit growth under control, we expect average CPI inflation to be contained at about 3 percent this year," Wang said in a research note.

China's growth of M2, the broadest measure of money supply that includes all deposits and cash, declined to 18.5 percent in June, compared with 29.7 percent over the same period last year.

The central bank also pledged it would continue to implement a moderately relaxed monetary policy and maintain proper credit growth in the second half.

"We will try to make monetary policy more targeted and flexible and maintain a balance between the objective of rapid economic growth, addressing structural issues and controlling inflation," the report said.