"But up to now, we do not think we should make very serious monetary policy changes," he said, adding that the authorities would target reaching a soft-landing, rather than making hasty policy adjustments.

Zhou made the remarks at a forum on China's economic growth and its impact held on Saturday in Beijing.

His remarks were echoed by Wu Xiaoling, deputy governor of the bank, who told a forum on Saturday, sponsored by the Development Research Center under the State Council, that instead of focusing on interest rate levels, the central bank would promote the liberalization of the interest rate regime to improve the transmission mechanism for monetary policy.

"In this round of macroeconomic management actions, the central bank is not focusing its attention on adjusting the level of interest rates," she said.

Interest rates on local currency deposits are already considerably higher than those on dollar deposits in the Chinese market and in the international market, and any "improper" move in this area may further quicken the inflow of foreign currencies, she said.

The massive inflow of dollars in recent months, partly as a result of expectations that the local currency, or renminbi, will appreciate soon, are seen as a major force driving China's rapid monetary growth with the central bank having to purchase excess dollars with local currency.

"It will be too early to change the overall policy direction," Zhou said. But the central bank will closely watch the trend, he added.

China's gross domestic product (GDP) grew 9.7 percent in the first quarter of the year on a year-on-year basis. This kept up with the upbeat mood seen in 2003, when annual GDP growth was 9.1 percent and the fourth quarter rise was 9.9 percent.

The growth has been largely driven by fixed investment, which increased by 43 percent in the first quarter to 879.9 billion yuan (US$106 billion).

Moreover, the consumer price index, a key barometre for inflation, reversed months of negative annualized growth last year, hitting 3.2 percent in January of this year, the fastest pace in the past few years. It came in at 2.8 percent for the first quarter.

The uptrend is likely to continue in the second quarter of the year, Wu said, and once it rises above the lending rate, which means negative borrowing costs, businesses will build up their stockpile of raw materials, pushing prices up further.

The one-year lending rate at Chinese banks stands at 5.31 percent currently.

"If the consumer price index rises further to bring the real interest rate on loans to the negative territory, the central bank will not turn a blind eye," Wu said.

But economists generally hold that instead of an overall overheating, the Chinese economy has only seen over-expansion in some specific sectors, including real estate and automobile manufacturing.

Fan Gang, director of the National Institute of Economic Research, also said he was quite optimistic about China's soft-landing endeavor.

"I don't think the current growth is too far from being sustainable," he said.

Hopefully the macro policy will become effective in the second half of the year, Fan said. That would bring annual economic growth to about 9 percent and 8-9 percent next year, which is suitable for China.

While keeping a close eye on further developments in prices and monetary growth, Wu reiterated the central bank will, in a flexible way, use various monetary policy tools to achieve its policy goals this year.

The growth of broad money supply, the central bank's main target, stood at 19.1 percent last month, far outstripping the full-year goal of 17 percent.

The central bank raised bank reserve requirements by 1 percentage point - to 7 percent in September last year, a move aimed at restricting banks' lending capacity.

Loan growth subsided slightly in the following months, but recovered again in the first two months of 2004, with broad money M2, which covers cash in circulation and all deposits, rising by an annualized 19.8 percent, 1.3 percentage points faster than one year earlier.

The central bank stepped up open market operations in the first quarter of this year, sterilizing all the liquidity generated by its huge purchases of dollars during the period, Wu said.

The central bank also raised reserve requirements for some commercial banks by half a percentage point late last month.

Before the move takes effect, expected on the 25th of this month, the bank announced an across-the-board increase in reserve requirements on April 11, also by half a percentage point, for all financial institutions except credit co-operatives. The two increases take effect on the same day.

(China Daily April 19, 2004)