China's central bank said on Wednesday the economy is doing "better than expected" in the first quarter, and pledged to maintain "ample" liquidity in the financial system for economic recovery.

China would stick to its moderately easy monetary policy and ensure "ample" liquidity at banks, the People's Bank of China said in its quarterly monetary policy report posted on its website.

The country has pumped 4.58 trillion yuan (US$670 billion) of new loans into the economy in the first quarter to stimulate growth.

The figure is already nearing 5 trillion yuan of new loans targeted for the whole year. In March alone, new loans increased by a record 1.89 trillion yuan.

The central bank said in the first-quarter monetary policy report it would continue to instruct financial institutions to extend new loans, despite the earlier surge.

There have been "positive changes" in the economy in the first quarter, the bank said, echoing remarks made by Premier Wen Jiabao earlier last month.

The quarter-on-quarter growth is improving, compared to the fourth quarter of last year, it said, without giving specific figures.

China's economy expanded 6.1 percent in the first quarter, the lowest pace in 10 years and down from 9 percent in the fourth quarter last year.

The central bank also said foundations for the recovery are not solid, as uncertainties in external economies still exist and private investment is yet to become active with new lending concentrated on government projects.

In listing uncertainties ahead, the bank said the country still has to battle against the financial crisis that is unfolding and a collapse in external demand that is hurting exports.

The country is also under great pressure to create enough jobs and from a slower growth in residents' income, which would suppress future consumption, it said.

The bank also warned overcapacity and insufficient demand may drive prices lower in the country with the world economy in a downturn.

But it also said continued falls in prices may become less likely along with the world recovery, a turnaround in the national economy and fast credit growth.

"Prices of primary products and assets may rebound quickly once investor confidence is restored, as the global credit is relatively loose thanks to injection of liquidity and stimulus packages across the world," the bank said.

(Xinhua News Agency May 7, 2009)