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China's inflation may climb

CHINA'S inflation may rebound in the second half this year, the central bank said yesterday.

The decline in the Consumer Price Index, the main gauge of inflation, may reach bottom in the third quarter, the People's Bank of China said in a 10-page report by its Financial Survey and Statistics Department.

"China's economy is at a critical stage. We should maintain the stable macro-economic policy and continue to consolidate the foundation for an economic rebound," the report said.

The CPI fell for a fifth month in June, dropping 1.7 percent from a year earlier - the biggest decline since 1999.

Rising commodities prices and ample liquidity will add pressure on inflation in the future, the report said.

The central government has reiterated that it will keep the relatively easing monetary policy despite concerns of possible bad loans due to the rapid growth in credit.

Meanwhile, the China Banking Regulatory Commission has issued rules to curb irregularities in issuing of credit to fixed-asset investment projects, noting that the flow of credit should not be quicker than their construction.

Chinese banks must ensure the loans they issue for FAI projects are actually being put to use in the real economy, the banking regulator said on Monday.

China issued 7.37 trillion yuan (US$1.08 trillion) of new yuan loans in the first half, up 4.9 trillion yuan from a year ago.

The first-half figure already beat the 5-trillion-yuan target for the whole of 2009 which was set at the start of the year.

The ample liquidity has helped fuel economic growth and a rebound in the stock and property markets.

China's economy grew by a faster-than-expected 7.1 percent in the first half and 7.9 percent in the second quarter.

But Nikhilesh Bhattacharyya, a Moody's associate economist, said the drivers behind the rapid credit growth are fading.

"With the worst of the downturn behind them, the need for the authorities to stimulate investment via credit growth is fading," he said.


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