Davos, Switzerland: China's central bank stands ready to take more steps this year to ensure rapid lending growth does not cause the economy to overheat, a senior official said on Saturday.

Zhu Min, deputy governor of the People's Bank of China, also said recent steps to rein in credit were an appropriate response to that problem and did not signal a departure from the country's relatively loose policy stance.

"We are very carefully managing loan growth this year to slow down the path of loan growth and to make sure that investment will be at a smooth level to avoid overheating," Zhu said on the sidelines of the World Economic Forum. "We will guide - we don't want to use the word control because they (the banks) are commercial entities - the market and we would like to see smooth loan growth and smooth growth," he said in an interview.

Fears that China, the world's third-largest economy, may tighten monetary policy further spooked global financial markets on Jan 26 after Beijing ordered some banks to comply immediately with a planned increase in reserves.

Chinese banks extended 1.45 trillion yuan ($212 billion) in new loans during the first 19 days of the year as they scrambled to front-load lending, according to a report in the 21st Century Business Herald. Earlier this month, the central bank guided up the yield on its three-month bills for the second time this year, signaling its concerns over inflationary pressures and asset bubbles.

The Asian giant has been one of the main drivers of global economic recovery in the absence of a strong rebound in the West and investors fear a slowdown there would stunt its demand for commodities and other imported goods.

"I really don't understand why the European market had such a big response to the so-called China money market movements," he said. "We don't think this is a change of monetary policy. We still have a sort of modest and accommodative fiscal and monetary policy."

Many traders believe the People's Bank of China (PBOC) will initially rely on quantitative measures such as raising bank reserve ratios, implementing "window guidance" on lending and sales of three-year bills before raising interest rates.

When mulling interest rate moves, Zhu said China would not only take domestic conditions into account, but also the global environment, given international efforts to coordinate strategies to exit from the economic crisis. The PBOC was keeping a close watch on inflation, which hit 1.9 percent in December, a marked acceleration from November's reading of 0.6 percent. Although upward pressures on consumer prices were gathering steam, Zhu said he was confident that it would remain within the monetary authority's expectations.

Reuters