China Central Bank Wary of Inflation

飞雪寒冰

The People's Bank of China is worried about inflation but will maintain its moderately loose policy in the second half to provide adequate liquidity in support of economic growth, a central bank official told Caijing.

The official, who declined to be identified, said inflation, not deflation, is the focus of the bank's concern, even though the Consumer Price Index fell 1.7 percent in June, contracting for the fifth straight month. The Producer Price Index fell 7.8 percent last month, the seventh consecutive fall.

The central bank held a semi-annual conference on July 19 and 20 to set targets for the second half of the year.

Though the indicators are still showing deflationary conditions in the wake of the economic collapse of 2008, inflation fears have been fueled by the liquidity the government has since pumped into the system. Much of that liquidity is believed to have been captured by the stock and property markets, raising the prospect of an asset bubble.

飞雪寒冰

Analysts do not believe the central bank will adjust policy until 2010 or late 2009 at the earliest, when growth fueled by the stimulus becomes more firmly established. In the second quarter GDP growth rebounded sharply to 7.9 percent from 6.1 percent in the first three months. There is some way to go before the government achieves its full-year target of 8 percent growth but some fourth quarter projections for GDP are running as high as 10 percent.

Monetary authorities have been reluctant to say outright that policy is headed for tightening for fear of endangering the recovery. Instead the signals have been largely informal, taking the form of stepped-up open market operations or instructions to banks to be more mindful of credit quality.

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bbzhao2002

Maybe our central bank is much stronger