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PBOC to Stick to 'Tight' Stance

Economic and credit growth is likely to slow this year as the central bank sticks to its "tight" monetary policy to curb inflation, its vice-governor said yesterday.

M2 growth, the broad measure of money supply, is expected to fall to 16 percent from 16.7 percent in 2007, Yi Gang, vice-governor of the People's Bank of China, said at a Peking University forum.

Ample market liquidity is widely thought to have helped stoke inflation, with the nation's CPI hitting an 11-year high of 7.1 percent in January. Analysts said it could rise further in the next two months.

Yi said the central bank would be consistent in implementing the "tight" monetary policy unveiled after the Central Economic Work Conference in December, despite the growing risk of an economic slowdown.

Yi said the US subprime crisis and damage caused by severe snowstorms across central and southern China since late January posed a challenge for policymakers.

"But taking into consideration all these changes, we still think inflation is our biggest threat and we should spare no effort to tame prices," he told the forum.

In a monetary report released on Friday for the fourth quarter last year, the central bank said there was greater inflationary pressure and prices would remain high in the first half this year.

Yi said the central bank would seek a tight monetary policy by adopting open market operations, using bank reserve ratios and guiding banks to extend loans in a more reasonable way.

"We will stick to this policy no matter how domestic and international conditions change."

But that comment differed from the wording in a Friday report, which said that while implementing the tight monetary policy, the central bank would "fine-tune" as necessary to create a more stable environment for economic growth.

Yi forecast that China's GDP could grow by about 10 percent this year, compared with 11.4 percent in 2007.

He also said bank loan growth would slow this year. Last year, loan growth increased 16.4 percent year-on-year, up 1.9 percentage points from 2006.

(China Daily February 25, 2008)

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