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Central bank alert on inflation
(China Daily by Xu Binglan)
Updated: 2004-02-24 23:39

The central bank Tuesday warned against looming inflation in 2004 and vowed to control credit growth to fend off inflationary pressures.

In its annual monetary policy report, the People's Bank of China predicted that the country's consumer price index (CPI), the key barometre for inflation, will grow by 3 per cent this year. This compared to 1.2 per cent in 2003.

Driven by rapid economic growth, particularly investments, CPI growth accelerated in the second half of last year, from below 1 per cent to 3.2 per cent in December.

Price hikes of grain and raw materials will spill over well into 2004.

"Even without new factors driving price growth, the index will move to 2.2 per cent by itself in 2004," the report said.

"We really can not be optimistic about the situation of inflation."

The report said the central bank will use various instruments to control excessive lending growth to cool the heating investing activities.

It said that the central bank aims to limit new credits nationwide, which stood at 3 trillion yuan (US$360 billion) last year, to 2.6 trillion (US$310 billion) in 2004.

Growth of the M2 index, which measures both cash in circulation and deposits, is targeted at 17 per cent this year, as compared to 19.6 per cent in 2003, Zhou said.

Leading economic officials have said that overcapacity, blindly launched projects and some cities' unnecessarily grand urban development programmes have resulted in faster-than-needed investment growth, which is behind the inflationary pressure.

These projects and programmes, many of which were funded by bank loans, pose a threat to the health of the financial institutions and the economy as whole, they said.

 
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