China's central bank warns on growth pressure, inflation views

Beijing

CHINA'S central bank said it will "increase counter-cyclical adjustment" to ward off downward pressure on the economy, while staying vigilant on the possibility of expectations that inflation may spread.

The economy faces greater difficulties as investment growth slows and industrial production remains sluggish, the People's Bank of China (PBOC) said in its third-quarter monetary policy report released on Saturday. The central bank highlighted an increase in challenges from the previous report in August and renewed its concern on inflation risks.

The report signals that the central bank faces limited scope for policy manoeuvres despite the increasing economic risks. The PBOC will remain committed to a targeted, constrained approach towards easing. Monetary policy will "properly handle the short-term pressure", making sure not to offer excessive funding, while keeping an eye on the risk of expectations that inflation may spread, the report said.

China's consumer price index rose to a seven-year high of 3.8 per cent in October and could continue to climb on high pork prices but the PBOC said that it expects inflation pressure to gradually decline in the second half of next year.

The bank dismissed concerns of deepening deflation for factories, saying that the contraction in the producer price index is mostly due to base effects. It said factory-gate prices should return to year-on-year growth in a few months.

The weighted average rate of regular bank loans edged up to 5.96 per cent in September, slightly higher than 5.94 per cent in June, indicating the interest rate revamp the central bank introduced in August hasn't successfully lowered overall borrowing costs. BLOOMBERG