China’s Central Bank Warns of Rising Inflation

China’s central bank today called for implementation of “prudent” monetary policy because of the prospects of continued inflationary situation in China, which registered a record 5.5 percent in May.

“The world economy continues its slow recovery, but risk factors are present,” said in a statement posted on the website of the People’s Bank of China (PBOC, central), adding that “inflationary pressure is still very high”.

After a meeting of the Monetary Policy Committee, the institution recommended “to implement a prudent monetary policy,” pay attention to the influence of international and national financial trends.

As additional measures, the PBOC aims to improve macroeconomic policies to control liquidity, increasing investments in “key and weak” sectors, especially agriculture and SMEs, and maintain lending to a reasonable level.

The Consumer Price Index (CPI) in May reached its highest level in 34 months, with 5.5 percent, a percentage well above the 4 percent level set by Beijing.

The Chinese premier, Wen Jiabao, said in June that one of the economic priorities for China this year is prudent monetary policies and to curb inflation.

Inflation is one of the major regional discontent among China’s population in a year where there have been numerous social protests.

This year the PBOC increased the cash ratio six times and twice for the interest rates in order to control runaway inflation suffered by the Asian giant.