China c.bank to prioritise economic growth

BEIJING Fri Nov 2, 2012 5:57pm IST

Props used during a ceremony for the issue of China's RMB sovereign bonds are seen in this illustration photo in Hong Kong November 30, 2010. REUTERS/Bobby Yip/Files

Props used during a ceremony for the issue of China's RMB sovereign bonds are seen in this illustration photo in Hong Kong November 30, 2010.

Credit: Reuters/Bobby Yip/Files

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BEIJING (Reuters) - China's central bank will prioritise supporting the economy above other needs, its latest policy report showed, affirming expectations that the recovery in the Chinese growth engine is feeble at best.

The People's Bank of China said in its third-quarter monetary policy report that subdued economic activity was keeping a lid on price pressures and the inflation trend was "stable".

However, it cautioned that government measures to stimulate growth could add more pressure on consumer prices.

"In the next stage, we will make it a more important task to stabilise economic growth," the central bank said in the report released on its website.

China's export- and investment-powered economy sunk into its seventh straight quarter of slowdown between July and September as domestic and foreign demand waned, though many analysts are hopeful that the worst has passed.

The central bank was more cautious, however.

It warned that global demand could slump again if Europe failed to tackle its debt crisis, pushing the world economy into a second successive, or double-dip, recession.

"China's economy still needs to foster its internal strength and the foundation of an economic recovery is not yet solid," it said.

Official and private-sector factory surveys showed this week that the world's No. 2 economy is finally regaining some traction, albeit at a sluggish pace as private factories faced their 12th straight month of cooling growth.

PRUDENT POLICY

The central bank said monetary policy would be kept "prudent" and "fine-tuned" accordingly, a refrain it uses to describe policy even when it cuts or raises interest rates.

"Prices are still sensitive to increase in demand and pro-growth stimulus policies," the bank said, adding that rising domestic energy prices and labour costs could also fan inflation pressures.

Super-loose U.S. monetary policy also renders China vulnerable to surges in imported inflation, the central bank said.

China's consumer price inflation eased to 1.9 percent in September from August's 2 percent, a benign outcome that showed Beijing has scope to relax policy if it so wishes.

But the central bank steered clear of dropping any hints that looser policy could be on the way.

It did not mention any plans to adjust the level of interest rates and banks' reserve requirements, only saying instead it would use all tools available - including open market operations - to set policy.

On much needed financial reforms, the bank said the country would continue to free the interest rates market, and allow the yuan to trade with more flexibility, although the currency would be kept "basically stable".

(Reporting by Aileen Wang and Koh Gui Qing; Editing by Kim Coghill and Robert Birsel)

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