China central bank says to stick to prudent monetary policy (Reuters)

BEIJING (Reuters) ? China's central bank pledged on Monday to keep its "prudent" policy to wrestle inflation under control, but signaled some concerns over slowing growth by stressing policy "stability."

"China's economy continues to grow at a stable and relatively fast pace, but inflation pressures remain high," the central bank said in a statement to summarize its monetary policy meeting for the second quarter.

The People's Bank of China said it will use various tools to manage liquidity and keep the overall money supply at a reasonable level.

But the central bank also stressed the importance of "stability" and "flexibility" in implementing its prudent policy, signaling its concerns about the slowing economy.

"The central bank may reduce the intensity and frequency of policy tightening to avoid hurting the real economy, given its policy efforts have gained some traction," said Tang Jianwei, economist at Bank of Communications in Shanghai.

"However, considering that inflation pressures are still high, the central bank is likely to relax policy. It may wait and see," he said.

Tang still expects another interest rate rise later this month.

The central bank has raised interest rates four times and reserve requirement ratios six times this year to tame stubbornly high inflation.

But price pressures remain elevated, with annual inflation widely expected to quicken to around 6 percent in June after hitting a 34 month-high of 5.5 percent in May.

Meanwhile, China's factory sector grew at its slowest pace in 28 months in June as new orders expanded less quickly, pointing to slowing economic growth under the weight of credit curbs and weaker global demand.

Many small companies have been complaining about a credit crunch as banks tighten their belts.

The central bank reiterated that it will keep the yuan exchange rate basically stable.

It also sounded a cautious tone on the outlook of the global economy, saying the world economy is recovering slowly and still facing many risks.

(Reporting by Zhou Xin,Aileen Wang and Gui Qing Koh; Writing by Kevin Yao; Editing by Catherine Evans)

Source: http://us.rd.yahoo.com/dailynews/rss/business/*http%3A//news.yahoo.com/s/nm/20110704/bs_nm/us_china_economy_pboc

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