2nd LD: China sticks to prudent monetary policy: central bank governor

Chinese central bank governor Zhou Xiaochuan said Thursday that China is sticking to the prudent monetary policy despite the use of a string of new monetary policy tools, hinting at policy flexibility to combat deflation risk and boost growth.

Zhou made the remarks at a press conference on the sidelines of the national legislature annual session, adding that compared with the large size of Chinese economy, the scale of those monetary policy tools is not big.

With an economic slowdown, the Chinese economy has entered a "new normal" era, but that means neither the economy is in a condition troubled by particular problems, nor the nation's monetary policy will shift gears, he said.

There will be some "flexibility" of the prudent monetary policy, he said.

China's gross domestic product expanded 7.4 percent last year, its lowest level of growth since 1990. The annual economic growth target for 2015 was set at around 7 percent.

When asked about the implications of the subdued price levels for monetary policy setting, Zhou said "enough attention should be given to inflationary pressure change and a long-term view should be taken."

The consumer price index (CPI) is the most important gauge of inflation pressure and the central bank "is closely following" the change of the CPI and producer price index (PPI), said central bank vice governor Yi Gang.

China's CPI grew 1.4 percent year on year in February. The reading quickened from the 0.8 percent gain in January, the lowest level in more than five years, but was lower than the inflation increase target at around 3 percent set in this year's government work report.

The deflation risk is a challenge facing the global economy, and "the People's Bank of China (PBOC) is managing the liquidity when pursuing a prudent monetary policy," said Yi, adding that the combination of a proactive fiscal policy and prudent monetary policy is a good choice to cope with the current economic development. Endi