China's central bank pledged yesterday to closely monitor the performance of the nation's financial industry and use monetary policy tools to adjust the liquidity of financial institutions.

Zhou Xiaochuan, governor of the People's Bank of China (PBOC), told the bank's half-year meeting yesterday the central government's macroeconomic moves have produced initial results, according to Friday's China Daily.

"With the macroeconomic measures coming into play gradually, the effect will become more evident," he said.

For the remainder of the year, Zhou said the central bank will enhance monitoring of the financial situation.

"On the basis of prudently observing and analyzing the macroeconomic situation," the PBOC would adjust the liquidity of financial institutions with multiple monetary policy instruments, he said.

The central bank is widely expected to raise interest rates later this year should earlier monetary policy actions, mainly three increases in bank reserve requirements, fail to contain the continued rapid growth in bank lending and fixed investment since last year.

The authorities have also taken some administrative measures, including price curbs, this year as the frenzied growth continued.

As a result, some economic indicators including fixed investment, money supply and industrial production slackened their pace in May.

But the consumer price index (CPI), the key barometer for inflationary pressure, climbed up to 4.4 per cent.

"Administrative tightening measures have had a notable impact in slowing investment growth since late April, but have also raised the risk of a policy overshoot," said Liang Hong, China economist at Goldman Sachs (Asia).

(China Daily)