"With the macroeconomic measures coming into play gradually, the effect will become more evident," he said.

For the remainder of the year, Zhou said the central bank will enhance monitoring of the financial situation.

"On the basis of prudently observing and analyzing the macroeconomic situation," the PBOC would adjust the liquidity of financial institutions with multiple monetary policy instruments, he said.

The central bank is widely expected to raise interest rates later this year should earlier monetary policy actions, mainly three increases in bank reserve requirements, fail to contain the continued rapid growth in bank lending and fixed investment since last year.

The authorities have also taken some administrative measures, including price curbs, this year as the frenzied growth continued.

As a result, some economic indicators including fixed investment, money supply and industrial production slackened their pace in May.

But the consumer price index (CPI), the key barometer for inflationary pressure, climbed up to 4.4 percent.

"Administrative tightening measures have had a notable impact in slowing investment growth since late April, but have also raised the risk of a policy overshoot," said Liang Hong, China economist at Goldman Sachs (Asia).

"We believe that if the pace of growth deceleration is matched in June, the authorities may consider lifting some of the administrative tightening that they had put into place," she said.

"If that is the case, however, we believe it would be critical for the government to replace these administrative measures with more market-based tightening, such as through adjustments in interest rates and exchange rates."

Senior central bankers have said an interest rate rise will be considered if CPI growth exceeds the one-year lending rate - at 5.31 currently - to refuel lending growth and further undermine the purchasing power of residents.

Although the CPI growth accelerated last month, 4.4 percent was below many economists' expectations. It did not surprise the PBOC, which said last month key indicators including CPI will continue on the fast lane until the third quarter of this year.

But the price rises are already frustrating the Chinese people, according to the PBOC's second-quarter survey of urban depositors, which was conducted last month in 50 Chinese cities.

The Price Satisfaction Index came in at minus 11.8, the lowest since the survey was started in 1999.

Nearly 25 percent of the respondents said prices were "too high and hardly acceptable," up 6.8 percentage points from the previous quarter. And 39.6 percent of them expected prices to go up further.

More people found the current interest rate level unsatisfactory and had become more reluctant to make new deposits, with 72.9 percent of respondents saying deposit rates were "low," 2.2 percentage points up from the first quarter.

The proportion of residents preferring to deposit more rather than buy Treasury bonds or stocks dropped by 2.5 percentage points from the previous quarter to 32.2 percent.

(China Daily June 18, 2004)