China's central bank vows to prevent economy overheating

China's central bank has said it will continue the "rational" restriction of money supply and loans as the main weapon against an overheating economy.

In its latest quarterly monetary report, the People's Bank of China said the economy was expected to grow at a "slightly slower" pace, but would remain on a fast, stable track.

"Great attention should be paid to risks posed to the Chinese economy by the fast growth of fixed assets investment, excessive money supply and loans," the bank report said.

Investment-driven growth soared to 11.3 percent in the second quarter, its highest rate in a decade.

The report said outstanding loans of all financial institutions rose by 606.81 billion yuan (75.85 billion U.S. dollars) by the end of June from a year earlier.

This was despite a raft of government measures, including an interest rate hike in late April and regulations to limit foreign investment in real estate, that were meant to control the building of factories, luxury apartments and other projects.

The central bank raised the reserve ratio for commercial banks by 0.5 percentage points on July 5. The move has brought the reserves that most banks are required to keep on deposit with the central bank to eight percent, restricting their lending capacities.

The report said it was only a "fine-tuning" measure, rather than an "extremely potent drug" as claimed in some media reports.

It did not confirm whether another interest rate hike was likely.

But it warned of mounting inflationary pressure, though the consumer price index, China's leading inflation index, climbed just 1.3 percent in the first half of the year.

Booming investment and exports would push up prices of capital goods, and rising resource prices would have a knock-on effect on consumer prices, although industrial overcapacity and falling grain prices would combine to ease inflation.

Source: Xinhua