The central bank released a report yesterday pointing out that monetary policy should be alert to deflation in the near future, and be on guard against inflation in the long run.

According to the report, current inflationary pressure has eased, and economic growth is gradually slowing down. Such a macroeconomic climate requires monetary policy to be attentive to possible deflation. The central bank will adopt a moderately loose monetary policy to ensure ample liquidity of the banking system, reasonable growth of monetary credit, and financial stability. Also, under a proactive fiscal policy, domestic demand will be stimulated and more financial support will be given to economic growth.

The report also notes that domestic labor supply is approaching its Lewis Turning Point, and that the costs of labor force and other resources will keep rising in the long term. To tackle the global financial crisis, more and more financial authorities are beginning to implement a relatively loose monetary policy; there is a risk that the liquidity thus injected might be transformed into inflationary pressure when the economy recovers. Monetary policy should therefore stabilize the currency and keep alert to the possibility of inflation.

Fore more details, please read the full story in Chinese:

http://paper.cnstock.com/paper_new/html/2008-11/18/content_65974326.htm

(China.org.cn by Fan Junmei November 19, 2008)